Best Cities To Buy a Starter Home (2024 Study)

In the 1960s, the median size of a single-family home in the U.S. was roughly 1,500 square feet. Most homes built then were “starter homes” because they were affordable and ranged from 1,200 to 2,000 square feet (around three bedrooms). Starter homes are ideal for young adults or young couples who want to own property but don’t need a ton of space or are perhaps looking to break into the real estate investment market.

Nearly six decades later, the median single-family home has grown to 2,261 square feet as of March 2023. There’s also been a decline in starter home construction since 2008, and existing homes have shot up in price, causing millennials to pay much more for a home than previous generations.

For first-time home buyers aiming to save money, opting for budget-friendly moving companies and seeking out affordable starter homes can serve as pivotal strategies in maximizing savings during the home buying process. And although there may be a scarcity of starter homes across the country, we found that there are still plenty of starter homes in some U.S. cities.

We’ve rounded up the best cities to buy a starter home based on price, availability, income, and comparable rent while factoring in quality-of-life factors such as dining, entertainment, and crime rates. Check out our findings and review our methodology section below for more details on our data collection.

Main Findings

• The Lone Star State has three top 10 cities to buy a starter home (El Paso, Fort Worth, and Laredo, Texas). 
• New homebuyers also looking for water views may be in luck. Two of the best places to buy a starter home are beach towns; Virginia Beach, Virginia (No. 3), and St. Petersburg, Florida (No. 9).
• Our data shows that the average price of a starter home is less than $100,000 in eight cities, but greater than $500,000 in 13. 
• Port St. Lucie, Florida, (No. 32) has a 60% homeownership rate for people under age 35—the highest of the 100 cities we analyzed.

Top 10 Best Cities To Buy a Starter Home

The following 10 cities are the best places in the U.S. to buy a starter home based on our analysis. These cities scored the highest after being ranked on cost and lifestyle factors, including the average cost of a starter home, mortgage as a percentage of income, availability of restaurants and entertainment establishments, and crime rates.

Top 10 Most Affordable Cities for Starter Homes

If affordability is top of mind as a prospective homebuyer, you’ll want to look in the Midwest. The following 10 cities are the most affordable places to purchase a starter home, with the lowest mortgage-to-income percentage. Also shown is the average starter home price, which is determined by the median value across the bottom third of priced homes in the area (fifth to 35th percentile).

Pros and Cons of Buying a Starter Home

Buying a home has plenty of advantages (and disadvantages). A starter home isn’t intended to be your forever home, so it may come with a few more considerations.

Advantages of Buying a Starter Home

Homeownership is a top goal for many Americans for good reason—there are many benefits to buying your first home. Let’s review the top three advantages to buying a starter home:  

1. You get a taste of homeownership at a lower cost.

The most attractive feature of a starter home is (presumably) it will cost you less because of its modest size or less popular location. Buying a more affordable home allows you to become a homeowner without waiting years to save up a hefty down payment.

A smaller home also means it will require less furniture and upkeep, which will save you money on overall housing costs.

2. You can build home equity.

You won’t ever get back all that money you spend on rent. But with monthly mortgage payments, your housing expenses are helping you build home equity (the difference between your home’s value and the mortgage). Think of it as building up your net worth.

Depending on your situation, it may be beneficial to use your home equity from your starter home to purchase your “forever home” down the line. This can be especially true if you plan to keep your starter home as a real estate investment. This brings us to our next advantage:

3. You can use it as a real estate investment in the future.

Real estate investment is rising, with the market expected to hit $30.5 billion by 2031. If you’re one of the 34% of Americans who believe real estate is the best long-term investment opportunity, buying a starter home is a good way to get started. When it’s time to move into your forever home, you can rent out your starter home or try to sell it for a profit.

4. You feel less pressure to buy the perfect home.

Your starter home will most likely not be your dream home—and that’s the point. Buying a starter home should be less stressful than a forever home because your first home doesn’t have to “check all the boxes.” It should be just big enough for your family and able to meet all your needs, not your wants. A starter home is a perfect opportunity to experience homeownership and learn what features you want (and don’t want) in your future forever home.

Disadvantages of Buying a Starter Home

While buying a starter home is a sound financial investment for many, it can spell disaster for others. Before you start shopping, consider the following disadvantages of buying a starter home:

1. It may require a lot of money.

Homes are bigger these days, so starter homes are often older and may even be fixer-uppers. You’ll want to get a proper home inspection before buying and ensure you have enough cash to deal with repairs. Fortunately, fixing up the home can lead to a bigger profit when it’s time to sell or rent, but you want to make sure it makes financial sense too.

2. It’s hard to find.

As discussed, there’s a shortage of starter homes. As of March 2023, the average-sized home is 2,469 square feet, and you’ll be paying for every inch. The lack of affordable starter homes could make for a frustrating home-buying experience, and it might not be worth the headache for a home you plan to move out of in only a few years.

3. You’ll have to buy another home, move, and (potentially) sell.

The home-buying process is a lot to handle—and so is moving. But you’ll have to do those two things again if you buy a starter home. Plus, if you’re not keeping your starter home as a rental property, you’ll have to sell it, which could be difficult depending on the outlook of your local housing market.

4. You could lose money.

Many people buy a starter home to increase their net worth, but the opposite can happen. If you buy in an area with a depreciating house value or have to invest too much money into fixing your starter home, it could cost you more than your profit. Also, remember that, in some cases, you’ll have to pay capital gains taxes on selling your starter home before you move into a new one.

We recommend working with a trusted financial advisor and experienced real estate agent to ensure you’re making the right decision to purchase a starter home.

Expert Tips and Insights

We asked three experts to share their insights for homebuyers on what to know before buying a starter home. Read their tips below.

Dr. Jake Wegmann

Associate Professor and Graduate Advisor for Community & Regional Planning

The University of Texas at Austin School of Architecture

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What are the benefits of buying a starter home versus renting?

Financially, it just depends on a complex blend of factors, including interest rates and whether rents and house prices are moving together or going up (or down) at different rates in a given city at a given time. In some times and places, renting will be financially advantageous over buying. In others, buying a starter home will be the better move, financially speaking.

Generally speaking, in markets that are chronically undersupplied with housing (think of the Bay Area of Boston or similar places), buying a home will pan out very well financially over the long term because the underbuilding will prop up your property values. But in those places, of course, the trick is that starter homes are hard to find. You might have to look in a place you normally wouldn't or look past some attributes in a starter home that are less than ideal. You also have to consider timing—even in the Bay Area, if you bought a house in 2005 and then had to sell it in 2010, you very well may have been selling at a loss. But in the long run, things are likelier to work out—if you bought that house in 2005 and still own it in 2024, generally speaking, you are more than golden in terms of its value.

With the standard tax deduction much higher than it once was, the tax advantages of homeownership don't play as much of a role, or any role at all, for a large number of homebuyers, especially those with more modest incomes.

Of course, one shouldn't look past the nonfinancial benefits of homeownership. These include a sense of security and control; the ability to express oneself in terms of aesthetic and design decisions; perhaps the ability to undertake activities such as gardening or working on a vintage motorcycle without worrying about what a landlord will think; and so forth. Then there are some other aspects that are partly about control but also might have a financial element. For instance, buying a starter home leaves open the possibility of adding an (income-producing) accessory dwelling unit, or house addition, at a later time. To put it in financial terms, you may gain option value that you simply can't if you continue renting.

What is the current state of the market in regard to starter homes (e.g., inventory or geographical hubs for starter homes)?

During the pandemic, house prices rose sharply in many markets where people had long taken it for granted that starter homes were easy to find. Boise is a classic example of such a market. However, there do continue to be some places where one might find a starter home. In addition, a recent New York Times article by Conor Dougherty suggests that homebuilders are responding to rapid increases in house prices by developing new house products that are much smaller and, therefore, much cheaper. One of the subdivisions that is featured, Elm Trails on the outskirts of San Antonio (subdivided with the involvement of one of my former students), offers 500-square-foot houses for under $150,000. Perhaps we are finally entering a long-overdue correction from the long decades of homebuilders building seemingly ever-bigger tract houses.

What advice would you give first-time homebuyers on deciding between buying a fixer-upper at a lower price or a move-in-ready starter home?

I would encourage them to be rigorous about assessing the value of the upgrades that you might want to pursue in a fixer-upper. Remember, just because you put $50,000 into upgrades is no guarantee that the market value of the house will go up by that same $50,000. If you plan to stay in the house for 20 years and you will personally greatly enjoy the upgrades, then it might not matter. But if part of your plan is to sell the house after three years, and you are counting on that extra $50,000 in value, take a hard look at other houses on the market now and assess whether your planned upgrades will deliver enough incremental value that other people (not you!) are looking for in the marketplace. As an old professor of mine, David Geltner from MIT's Real Estate Center, used to say, "Beware of the rose-colored glasses." Try to go through the discipline of seeing the world as it really is, not as you are hoping for it to be.

Jake Wegmann has taught and conducted research at UT Austin’s School of Architecture in the community and regional planning program since 2014. His research primarily focuses on housing affordability and its intersections with land use regulation and real estate development.

Dr. Daniel C. Lee

Full Professor in the Department of Finance, Law, and Real Estate

California State University, Los Angeles

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What are the benefits of buying a starter home versus renting?

Purchasing a starter home can protect against rent inflation and offer the stability of predictable monthly payments. It can also provide opportunities for equity growth and tax benefits. The FHA offers loans tailored for homebuyers with less cash on hand, including options that cover both purchase and remodeling costs, making initial ownership more accessible. Timing is crucial; buying at the right point in the housing cycle can maximize returns and safeguard against the risk of negative equity. The potential financial benefits of homeownership hinge on a strategic entry into the market that considers affordability and future value.

What is the current state of the market in regard to starter homes (e.g., inventory or geographical hubs for starter homes)?

California's starter home inventory is currently tight, driving up competition and prices in metropolitan areas and pushing buyers to explore FHA-financed opportunities in suburban and peripheral markets. Areas like the Inland Empire and Central Valley in southern California are becoming increasingly attractive due to their relative affordability and available inventory, despite the broader market's challenges with rent inflation. FHA loans, including those for renovations, can facilitate purchases in these expanding geographical hubs for first-time buyers. Actively monitoring these markets is key, as they offer emerging opportunities to enter homeownership.

What advice would you give first-time homebuyers on deciding between buying a fixer-upper at a lower price or a move-in-ready starter home?

Weighing the choice between a fixer-upper and a move-in-ready home hinges on long-term value, immediate affordability, and the capacity to manage renovations, with FHA loans available to ease the financial burden of both buying and remodeling. Fixer-uppers can offer a higher return if purchased wisely, even in Los Angeles's competitive market, but they also carry the risk of cost overruns and unexpected challenges. Move-in-ready homes offer convenience and immediate stability, free from the volatility of rent inflation and renovation complexities. First-time buyers should consider their willingness to take on projects versus their need for a turnkey solution in light of FHA's accessible loan options.

Dr. Daniel C. Lee is renowned in the academic realm, currently serving as a full professor in the Department of Finance, Law, and Real Estate at California State University, Los Angeles. He possesses a distinguished educational background with a trifecta of master’s degrees from the University of Illinois at Urbana-Champaign, spanning finance, business administration, and architecture. Further enriching this academic repertoire is a Ph.D. in business administration, with a specialization in real estate from the University of California, Berkeley.

Dr. John C. Banko

Senior Lecturer of Finance

Warrington College of Business at the University of Florida

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What are the benefits of buying a starter home versus renting?

The benefits of buying a starter home over renting largely depend on being at a point where buying makes sense. If you have found the city you like and a career opportunity that is stable with room to grow, then you may be ready for the commitment of becoming a homeowner in the area. On the financial side, homeownership is a key element to building long-term wealth for most. And the social benefits may be more valuable, from a stronger sense of personal satisfaction to a stronger sense of community.

What is the current state of the market in regard to starter homes (e.g., inventory or geographical hubs for starter homes)?

Many news outlets and periodicals develop an annual “Affordable Cities” list, offering places to live with good amenities, schools, job opportunities, and, of course, reasonable housing options—many of these cities are in Ohio, Indiana, Kansas, and Michigan. But even cities like New York have exciting programs (lotteries) offering residents an opportunity to purchase a home. As you would expect, retirement states (Florida, Arizona, California) and cities with a lot to offer are more expensive. The trick is to find a place that truly caters to what you value without those features you don’t use.

What advice would you give first-time homebuyers on deciding between buying a fixer-upper at a lower price or a move-in-ready starter home?

A fixer-upper is a great way to buy into a community that might otherwise be unaffordable. However, experience with these homes matters. Cosmetic fixes and non-structural changes likely require more time, effort, and patience than money. Foundational, structural, and sewage issues likely require a licensed professional and money. If you enjoy working on a home as a continual hobby, a fixer-upper is a realistic option. If you don’t want to view your home as a second job, then move-in ready is the way to go.

Dr. John Banko is a senior lecturer of finance at the Warrington College of Business and director of the wealth management program at the University of Florida. He held both faculty and administrative positions at the University of Florida, Northern Illinois University, and the University of Central Florida. At the University of Florida, Dr. Banko teaches graduate courses in financial management and advanced corporate finance, as well as a variety of other finance courses at the undergraduate level. He is also a CFA (Chartered Financial Analyst) charter holder.

Our Conclusion

The starter home may be becoming a thing of the past, but the idea is still attainable in many U.S. cities. Although millennials mostly chose to rent for longer to save up for their dream home, Gen Z is taking promising strides toward homeownership, tracking ahead of their parents’ generation thanks to the pandemic-era low mortgage rates. If your dream home still feels years away, investing in a starter home may be a sound financial decision for you to build up your home equity and (potentially) break into the real estate investment market.

Our Methodology

We compared 100 of the largest U.S. cities across six metrics to rank the best cities to buy a starter home. These six metrics are explained below, along with the data sources:

• Average starter home cost: This is the median value across the bottom third of priced homes in the area (fifth to 35th percentile). Data comes from Zillow and represents the average from May 2022 through April 2023. 
• Mortgage as a percentage of income: The average mortgage payment is based on a 30-year fixed-rate mortgage at 6.4% applied to the average starter home cost. Income represents the median household income for renters in the area. Data comes from Zillow and the U.S. Census Bureau’s 2021 1-year American Community Survey.  
• Young homeownership rate: This is the number of owner-occupied housing units divided by the total occupied housing units for individuals under age 35. Data comes from the U.S. Census Bureau’s 2021 1-year American Community Survey.  
• Concentration of restaurants: This is the number of restaurants per 10,000 people. Data comes from the U.S. Census Bureau’s 2021 County Business Patterns Survey. 
• Concentration of entertainment establishments: This is the number of entertainment establishments per 10,000 people. Data comes from the U.S. Census Bureau’s 2021 County Business Patterns Survey. 
• Violent crime rate: This is the number of violent crimes per 10,000 people. Data comes from the FBI’s Uniform Crime Reporting as of 2019. 

We calculated an average ranking using the six metrics above, half-weighting the concentration of restaurants and entertainment establishments and single-weighting all other metrics. The top-ranking city scored 100, and the worst received a 0.

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