Starter Homes Are Still Hard to Find: What Today’s Buyers Need to Know

For many first-time home buyers, finding an affordable starter home remains one of the biggest challenges in today’s housing market. While housing inventory has improved in some parts of the country, the supply of lower-priced homes has not fully recovered — and that continues to create competition for buyers searching for homes within a more affordable price range.

Recent housing market analysis shows just how much the starter-home landscape has changed since before the pandemic. Although the shortage of entry-level homes reached its worst point around 2022, there are still approximately 300,000 fewer homes priced below $350,000 available today than there were in 2019.

At the same time, the typical entry-level home now costs approximately $344,000, nearly $100,000 more than before the pandemic.

For first-time home buyers in New Jersey, Pennsylvania and throughout the Greater Philadelphia and South Jersey housing markets, those numbers reinforce something many buyers have already discovered firsthand: affordable homes are available, but finding the right one — and being financially prepared when it hits the market — can make all the difference.

Why Are Starter Homes So Difficult to Find?

The housing market has experienced a significant inventory shortage for several years, but that shortage hasn't affected every price range equally.

One of the biggest problems is the limited supply of homes at the lower end of the market.

Many existing homeowners purchased or refinanced their homes when mortgage rates were significantly lower. As a result, some homeowners who might normally sell and move into another property have decided to stay where they are.

That can reduce the number of existing homes coming onto the market.

Meanwhile, the cost of land, construction materials, labor and development has made it increasingly difficult for builders to construct new homes at traditional starter-home prices.

Put those factors together, and buyers searching for affordable homes can find themselves competing over a relatively small portion of the available housing inventory.

The Typical Starter Home Is Now Around $344,000

Perhaps the most striking change is how much the price of an entry-level home has increased.

The typical starter home is now approximately $344,000 nationally. That's almost $100,000 higher than before the pandemic.

For prospective buyers, however, the purchase price alone doesn't tell the entire story.

A buyer's actual affordability depends on several factors, including:

• Down payment

• Mortgage interest rate

• Property taxes

• Homeowners insurance

• Credit profile

• Loan program

• Mortgage insurance, when applicable

• Seller concessions or closing-cost assistance

• Available first-time home buyer or down-payment assistance programs

This is why determining affordability should generally start with the monthly housing payment, rather than simply choosing an arbitrary maximum home price.

Two homes with identical purchase prices can have substantially different monthly payments depending on taxes, insurance and financing structure.

Starter Home Inventory Varies Dramatically by Region

Another important part of today's housing market is that there really isn't one national real estate market.

Housing conditions can vary dramatically from one state to another — and even from one town to the next.

Recent analysis found that buyers in parts of the South and West have benefited from increased new-home construction. Builders in those regions responded to demand by adding more entry-level housing inventory, giving some buyers more choices and, in certain markets, improved pricing compared with a few years ago.

The Northeast has experienced a different situation.

Less new construction has contributed to continued pressure on housing inventory and home prices. That is particularly relevant for buyers searching for starter homes in South Jersey, Philadelphia and the surrounding suburbs, where established communities often have limited opportunities for large-scale new construction.

That doesn't mean first-time buyers can't find homes.

It means preparation becomes even more important.

First-Time Home Buyers Need to Be Ready Before They Start Shopping

When affordable homes are limited, buyers don't necessarily have the luxury of beginning the mortgage process after finding a house they love.

A strong first step is getting mortgage pre-approved before seriously shopping for a home.

A thorough mortgage pre-approval can help establish your realistic purchasing range and give you a much clearer picture of your expected monthly payment.

It can also help answer important questions before you're competing with other buyers.

For example:

How much home can I comfortably afford?

How much money will I need for a down payment?

What will my estimated closing costs be?

Should I consider an FHA, conventional, VA or USDA loan?

Do I qualify for any first-time home buyer assistance programs?

Would paying off certain debts improve my purchasing power?

Could seller concessions help reduce my out-of-pocket expenses?

Answering these questions ahead of time allows buyers to shop strategically rather than simply guessing at what they can afford.

You May Not Need 20% Down to Buy Your First Home

One misconception that can keep prospective buyers on the sidelines is the belief that purchasing a home requires a 20% down payment.

Depending on eligibility and the loan program, that isn't necessarily true.

There are mortgage programs that allow qualified buyers to purchase homes with considerably smaller down payments. Some programs may also be combined with available down-payment or closing-cost assistance.

The right financing strategy depends on the individual buyer.

A lower down payment may help someone purchase sooner, while another buyer may benefit from putting additional money down to reduce their monthly payment.

The goal shouldn't simply be finding the mortgage with the smallest down payment or lowest advertised rate. It should be building a financing structure that makes sense for the buyer's overall financial situation.

Don't Automatically Rule Out Homes Slightly Above Your Target Price

In a competitive starter-home market, buyers should also understand the difference between listing price and actual affordability.

Suppose you've decided that $350,000 is your maximum purchase price.

A home listed at $360,000 might initially appear to be outside your budget. But depending on the situation, financing structure, taxes, seller concessions and negotiations, that property may still deserve consideration.

Conversely, a $340,000 home with substantially higher property taxes could potentially have a higher monthly payment than a more expensive property in another municipality.

This is particularly important in New Jersey, where property taxes can vary significantly between municipalities.

Rather than searching based solely on price, buyers should understand their target total monthly housing payment.

That creates a much more accurate home-buying strategy.

Mortgage Rates Matter — But They Aren't the Only Factor

Mortgage interest rates receive enormous attention, and understandably so. Rates directly affect a buyer's monthly payment and purchasing power.

But waiting indefinitely for the "perfect" mortgage rate can create another problem.

If rates eventually decline, more buyers may enter the housing market. Increased buyer demand without a corresponding increase in starter-home inventory could create additional competition and potentially put upward pressure on home prices.

No one can reliably predict exactly where mortgage rates or home prices will go next.

That's why the better question for many buyers isn't:

"When will mortgage rates finally drop?"

It's:

"Can I comfortably purchase the right home with today's numbers?"

If the answer is yes, it may be worth exploring your options.

If rates improve later, refinancing may potentially become an option, depending on market conditions and your financial circumstances. But a home that fits your needs, budget and location today may not necessarily still be available later.

South Jersey First-Time Home Buyers May Need a More Strategic Approach

For buyers searching throughout Gloucester County, Camden County, Burlington County and other parts of South Jersey, affordability can vary considerably from one community to another.

Someone searching for a first home in Washington Township may encounter a different combination of prices, taxes and inventory than someone searching in Williamstown, Blackwood, Sewell, Deptford, Cherry Hill or surrounding communities.

Expanding a home search by even a few miles can sometimes uncover additional opportunities.

That's where coordination between your mortgage professional and real estate agent becomes valuable.

Instead of simply telling your Realtor, "I'm approved for $400,000," it can be more useful to understand the actual payment range you're trying to maintain.

Your mortgage professional can then evaluate individual properties based on their taxes, price and financing options while your Realtor focuses on locating homes that fit those parameters.

The Starter Home Isn't Necessarily the Forever Home

First-time buyers can also become discouraged because their initial budget may not purchase the type of home they ultimately envision owning.

But a starter home has traditionally been exactly that — a starting point.

Your first home doesn't necessarily need to have the perfect kitchen, finished basement, oversized yard and every feature you want long term.

For some buyers, purchasing a structurally sound home in a desirable location and making improvements over time can be a more realistic path toward homeownership.

Building equity in a first home may eventually help create opportunities to move into a larger or more expensive property later.

The key is making sure the first purchase makes financial sense.

Preparation Can Be a Buyer's Biggest Advantage

The shortage of affordable starter homes hasn't disappeared.

There are still hundreds of thousands fewer sub-$350,000 homes available nationally than there were before the pandemic, and the typical entry-level home has become significantly more expensive.

But challenging doesn't mean impossible.

Buyers who understand their financing, establish a comfortable monthly payment, obtain a solid mortgage pre-approval and work closely with an experienced real estate professional can put themselves in a much stronger position.

And that preparation should ideally happen before the perfect house appears online.

Because when a desirable and affordable home does become available, you want to be deciding whether to make an offer — not scrambling to figure out whether you can qualify for the mortgage.

Thinking About Buying a Home in South Jersey or Pennsylvania?

If you're considering buying your first home — or you've been searching and are frustrated by today's prices and inventory — let's take a closer look at the numbers.

We can review your income, credit, available funds, estimated monthly payment and potential mortgage programs to determine a realistic home-buying range.

Even if you're several months away from purchasing, starting the mortgage conversation early can give you time to improve your financial position and be ready when the right property becomes available.

Mortgage Mike and our team are here to help home buyers throughout South Jersey, Philadelphia and the surrounding areas understand their mortgage options and build a home-buying strategy that works for them.

Ready to find out what you may qualify for? Contact us today to start your mortgage pre-approval and create a home-buying plan based on your budget and goals.