Finding an affordable starter home is no easy feat these days. That’s especially true if you’re in an area where entry-level home prices have ticked higher, competition is fierce and inventory is scarce.
Not all housing markets are created equal, however. To find out what areas are seeing the largest — and smallest — gains in entry-level home prices, Bankrate asked CoreLogic to analyze its data over a five-year period from 2013 through September 2018. Here are lists of metro markets that saw the largest and smallest home-price gains for entry-level homes.
What the numbers mean
There’s a notable regional variation in how much starter-home prices have grown. In areas that saw the largest price increases, there are two explanations for the price growth, says Ralph McLaughlin, CoreLogic’s chief economist.
For starters, a handful of markets on the list — Detroit, Michigan, Miami, Florida, and Las Vegas, for example — saw home values plummet substantially during the housing crisis. Home prices in those areas have been on the rebound from deep price troughs, McLaughlin says.
In markets that weren’t hit as hard by the crisis such as Denver, Seattle and San Francisco, booming economic growth is the key force driving up home prices, McLaughlin says.
“If you’re a potential homebuyer, you really have to expect two different home-buying experiences in these markets,” McLaughlin says.
In places like Baltimore and Detroit that had the smallest gains in starter-home prices, homebuyers are more likely to see steady values — and that’s a good thing.
“Homebuyers might find affordable starter homes [in these markets] but they’ll be in the suburbs,” McLaughlin says. He adds that current homeowners in these markets shouldn’t expect to see tremendous price growth rather more stabilized prices.
“That means [homeowners] won’t get a ton of equity from explosive price growth but rather by paying down your mortgage,” he says.
Tips for buying the right-priced home in your market
In Chicago, a market that’s seen home-price growth slow to 31.2 percent in the past five years, buyers are very price-conscious, says Shay Hata, a real estate broker with Berkshire Hathaway HomeServices KoenigRubloff Realty Group in Chicago.
To ensure you pay a fair price for your home, look at the comparable listings of other homes that have recently sold or are on the market to see how the values compare, she recommends.
“Be careful you’re not being emotionally driven to pay more for a home than it’s worth,” Hata says.
Hata adds that buyers generally need to stay put for at least five years to recoup closing costs and see measurable price appreciation. The longer you stay put in a stable market, the more equity you’ll build over time, Hata says.
With home prices on the rise overall in the country, first-time homebuyers may have to lower their expectations for what kind of house they can afford, says Mary Ann Ferreira, a financial advisor with Viridian Advisors in Seattle.
Ideally, your monthly necessities should add up to 50 percent or less of your take-home pay, and your mortgage payment shouldn’t exceed 30 percent of your monthly income, Ferreira says.
It’s also critical to consider the hidden costs of homeownership aside from your mortgage payment and initial loan costs. A recent Bankrate survey found that a quarter of millennials regretted their home purchase because of unexpected maintenance and repair costs.
Avoid buyer’s remorse by setting aside a savings account aimed just at home maintenance and repair costs, Ferreira advises. A general rule of thumb is 1 percent of the home’s purchase price, but Ferreira says having at least $10,000 handy is even better.
Bankrate data reporter Adrian D. Garcia contributed to this report.