$1 million starter homes a new norm in 200+ cities: Zillow

A new Zillow report shows starter homes costing $1 million are becoming the norm in more than 200 cities in the United States. Zillow Home Loans senior economist Orphe Divounguy joins Wealth! to discuss the report and his advice for first-time homebuyers.

Divounguy explains that in many cities, it will take a lot more "to step on the first rung of the housing ladder." He notes that these cities are mostly concentrated in expensive coastal markets where homeownership rates are some of the lowest in the country. These markets are also where the most restrictive building regulations are, further squeezing the already-low supply available to buyers.

He adds that across the country, "homeowners are sitting on near-record home equity and the real value of their mortgage interest payments has actually declined during the pandemic." Meanwhile, the wealth of renters pales in comparison to the wealth of homeowners as wages increased much slower than rents. Thus, Divounguy explains that "the benefits of buying are still there for most people." His advice to homebuyers is to "start early on your journey to homeownership," by getting pre-qualified and working with a loan officer to identify how to secure the lowest possible mortgage rate.

For more expert insight and the latest market action, click here to watch this full episode of Wealth!

This post was written by Melanie Riehl

Video Transcript

One other thing I wanna ask you about, uh, is this research from Zillow about the number of million dollar starter starter homes?

Uh, I wanna get that number from you but it freaked me out.

This idea that starter homes are looking at, you're looking at a million dollars.

That's not good news for someone who has yet to buy a home.

Yes.

Uh, you know, there are many, many cities where it's now going to take you, uh, to, to, you're gonna need, uh, that a lot more, uh, in order to step on the, on the first rung of the housing ladder, those cities have concentrated in those expensive coastal markets.

Uh, basically markets, people want to live in California.

They wanna live close to the sea, they wanna live near these, uh, productive job centers.

Uh, but unfortunately, supply of housing lags in those markets.

Uh, and what we learned essentially is that the markets with the most restrictive building regulations are markets where, uh, a starter home now cost a million dollar a million dollars or more.

And those, those are also markets where homeownership rates are some of the lowest in the country.

I I wanna end on, uh, the refinancing question for those who are looking at interest rates right now and thinking, well, I can just buy and then refinance later on, talk to me about your advice for those folks.

Look, homeowners are sitting on near record home equity and, and the real value of their mortgage interest payments has actually declined during the pandemic.

And so, uh, renters, right?

Potential first time home buyers are the ones that I really felt kind of the pain, right?

Uh, for the last three years or so, uh, we saw wages, uh increase much slower than rents.

Uh, rents are now 33% higher than they were before the pandemic.

And so during that time, we saw the value the the the wealth of homeowners really increase much faster than that of renters.

And so the benefits of buying are still there, uh uh for, for most people.

And so, you know, my advice to potential home buyers is to start early on your journey to home ownership and that really means getting pre qualified first, right?

Uh Zill came out with a great tool called buy ability.

And what buy does is it allows potential home buyers to type in their credit score and it actually shows them the likelihood that they can afford the home they're actually looking at.

Right.

It actually changes and fluctuates as mortgage rates change.

We've seen large fluctuations.

And so it's, it's really important to be able to, to, to, to get the accurate information right away.

Uh in order to make the decision to, to, to jump into the market.

And I think once you've prequalify yourself, essentially, uh the next step is to talk to a loan officer, a Zillow home loans loan officer can actually be helpful uh highlighting maybe potentially highlighting areas where you can improve your credit score and how to get the lowest possible mortgage rate.

Uh Really the focus should be on getting more people home.

Uh And Zillow is trying to do that.

All right, Ore, we gotta leave it there.

Really appreciate your insights and time.

Thank you so much.

That was Ore Dungy.

He's a senior economist at Zillow Home Loans.