U.S. cities with $1M 'starter homes' hit record high. California tops the list
FILE-A For Sale sign is displayed in front of a home. (Photo by Joe Raedle/Getty Images)
SAN FRANCISCO - New figures show the number of cities where entry-level, starter homes cost a million dollars or more has hit a record high in the U.S., with California leading the pack.
By the numbers:
Since the pandemic, cities with a typical starter home worth $1 million or more have almost tripled to 242, according to figures from online real estate marketplace Zillow.
In February 2020, there were 80 cities around the U.S.
26 states have now been identified as having at least one city with million-dollar starter homes.
Prior to the pandemic, there were nine states that fell under that category.
California top of the list
Perhaps not surprisingly, California remains at the top of the list. 105 cities have been identified as having entry-level homes priced at $1 million or more, a marginal decline from 106 a year ago.
In February 2020, the state had 52 cities with million-dollar starter homes.
Local perspective:
The San Francisco-East Bay metro area and the South Bay region account for almost half, with 50 cities, figures show.
Zillow told KTVU the San Francisco metro area, which also includes Oakland and Berkeley, is actually not at the top of its list, after losing three cities since last year.
It now ranks 2nd, behind the New York City area.
The South Bay region, which includes the areas of San Jose, Sunnyvale, Santa Clara, came in 4th behind Los Angeles.
In the Bay Area, and especially in San Francisco, the longstanding housing shortage crisis is at the crux of the problem, experts said.
What they're saying:
"San Francisco is short about 140,000 homes, according to Zillow's estimates, one of the deepest deficits in the country," said Kara Ng, senior economist at Zillow. "There are geographic constraints that limit new construction in San Francisco; there isn't much space to build. Allowing for more dense housing is the clearest lever to pull."
What defines a 'starter home?'
Dig deeper:
For its analysis, Zillow defined a typical starter home as "one in the lowest third of home values in a given region."
Real estate experts note that the general definition of a starter home has shifted in recent years.
They used to be considered smaller, modest-sized properties, sometimes a condo or town house, often older in construction, and with a manageable price tag, one that a buyer could afford to purchase.
"But the California market transformed," according to an analysis by real estate and land use consulting firm JDJ Consulting Group. "Today, many homes that qualify as ‘starter’ come with price tags that feel anything but basic," the firm noted.
JDJ described a common entry-level home in these current times as one that has less bang for the buck, decades old, with a smaller square footage, having minimal upgrades, and "located outside premium coastal zones."
The pandemic factor
The rise in cities with million-dollar starter homes can be largely attributed to the pandemic housing boom, according to Zillow.
"The pandemic reset the cost of buying a home, spreading million-dollar starter homes from a handful of coastal states to more than two dozen states across the country," said Ng.
Before 2020, coastal states occupied almost the entire list.
"Now, states including Texas, Wyoming and Illinois have multiple such cities," Zillow explained.
New York and New Jersey have seen the fastest growth in this category, with 41 and 26 cities, respectively, according to Zillow.
Analysts also said a housing shortage, along with an increase in demand amid historic low mortgage rates, were also to blame for the expanded list.
Still the exception in the U.S.
Zillow experts noted that despite the rise in million-dollar homes, conditions are improving to become more buyer-friendly.
Nationwide, with the typical starter home worth $198,649, Zillow said those that cost a million-dollars were still the exception.
"More inventory, slower price growth and a narrowing rent-versus-buy gap mean buyers who are financially prepared are generally in better shape than in recent years," the real estate marketplace explained.
The Bay Area, its ‘own category’
However, California's housing market, especially in the Bay Area, has historically been more expensive than the rest of the country.
SEE ALSO: San Francisco home being sold with unusual option of AI stock as payment
"The Bay Area stands in its own category," JDJ Consulting pointed out, adding, "Even small fixers climb quickly due to tech salaries and long-term demand."
And in recent months, prices have been skyrocketing in places like San Francisco. Fueled by Bay Area workers well-funded by the rocket growth of the artificial intelligence sector, properties are going for millions over the asking price.
The median price for a home in the Bay Area was $1,450,000 last month, according to figures from the California Association of Realtors.
Zillow figures show the typical home value in the San Francisco metro area at $1,146,599.
In the San Jose metro area, it's $1,594,766.
"The primary driver of America’s affordability crisis is the housing shortage," Ng stressed, "and the Bay Area is a shining example of what happens when a region fails to build enough to keep up with demand."
(Zillow)
SF homes sell for well over asking price
Nearly 90% of San Francisco home sales in April went over the asking price, with some properties selling for millions more than their list price.