Gen Z and Millennials Are Redefining Starter Homes. It’s Driven Up Housing Prices
I believe that housing is expensive because too many people are skipping the first step. Starter homes used to be how you got in the game.
Now everyone wants their dream house on the first try, and they’re shocked when the numbers don’t work.
The data agrees. According to the BMO Real Financial Progress Index, 66% of Gen Z and 61% of Millennials say buying a starter home just to upgrade later makes no sense. Most are waiting for interest rates to drop, thinking that’ll fix the math. It won’t.
In this article, we’ll talk about why starter homes disappeared, how expectations got out of control, and what that means for the future of buying real estate.
We’ll also break down what smart buying still looks like without chasing perfect timing.
If you agree, share this with someone who needs to hear it, before they waste another year waiting for the perfect home.
Table of Contents
The Starter Home Is Dead, And That’s the Problem
Starter homes used to be everywhere. They were small, simple, and priced so new buyers could get in, build equity, and move up later. That model worked for decades because it was built on progress.
Today, that model is fading. Entry-level homes are either gone, turned into rentals, or priced like mid-tier properties. Builders aren’t focused on starter homes anymore because the margins are too thin.
Many of the ones that still exist are either unlivable or snapped up before the average buyer even has a shot. When first-time buyers skip the starting point, the rest of the ladder shifts up and everyone starts paying more.
Expectations Got Bigger, So Did the Budget
The issue isn’t just that homes cost more, it’s that buyers expect more right out of the gate. The average new home in the U.S. is now over 2,500 square feet, and half of them have four bedrooms.
A third come with three-car garages. That’s not a starter home, that’s a finish line. People want granite countertops, open layouts, and premium finishes, before they’ve even hit their financial stride.
That mindset inflates demand for move-in-ready properties and pushes prices higher across the board. And when buyers don’t find what they want, they say the market’s broken. But the truth is, it’s not housing that changed, it’s expectations.
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“I’ll Wait Until Rates Drop” Might Be a Financial Trap
A lot of young buyers are stuck in a holding pattern, convinced the only smart move is to wait for interest rates to fall. According to BMO, 69% of Gen Z and 74% of Millennials who want to buy are waiting for better rates.
The problem is that those better rates may never come, or if they do, competition will come with them. Today’s mortgage rates sit around 7%, which is actually normal by historical standards. The 2–3% rates during the pandemic were the exception, not the rule.
Waiting for those to return is like waiting for gas to be a dollar again. Meanwhile, prices keep climbing and inventory stays tight. The longer you wait, the more you pay later. Timing the market almost never works. Being financially ready does.
How to Get a Really Low Mortgage Rate (Even If You Think Rates Are High)
Inventory Is Low, and Investors Got There First
If it feels like there are fewer homes to buy, that’s because there are. Over the last few years, institutional investors have been snapping up affordable homes in bulk, turning them into rental properties.
In 2024 alone, about one in five homes was purchased by investors. These properties used to be stepping stones for young families. Now they’re long-term rentals locked behind someone else’s business model.
Add in low inventory, and what’s left on the market is either overpriced or needs major repairs. The result? First-time buyers feel boxed out, not because they’re unwilling to own, but because they’re competing against cash offers and corporations with deeper pockets.
People Want Big-City Jobs With Small-Town Prices
There’s a huge gap between where people want to live and what they’re willing to pay. Everyone wants the income of a high-salary metro with the housing cost of a quiet suburb. That trade-off used to be simple, if one place was too expensive, you moved.
But today, buyers refuse to give up the lifestyle, even when it’s costing them every financial opportunity. Remote work made it easier to live somewhere cheaper, but many still cling to expensive cities with no plan to adjust.
They want the full package without compromise. That disconnect leads to frustration, not solutions. Housing isn’t unaffordable everywhere. It’s just not affordable in the zip code some people refuse to leave.
Why the Housing Market Isn’t as Unaffordable as the Headlines Say
Life Milestones Are Delayed, and So Is Buying
Millennials and Gen Z are getting married later, having kids later, and hitting career stability later. That shift pushes everything else down the line, including homeownership. The median age for first-time homebuyers is now 36, the oldest it’s ever been.
And when people finally feel ready, they don’t want a starter anything. They want their forever home, move-in ready, no repairs, no sacrifices. But that jump skips the most important financial step, getting into the market.
A starter home, even an imperfect one, builds equity and creates options later. Waiting for life to be perfect delays the biggest wealth-building move most people can make.
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Rent Isn’t a Temporary Phase Anymore
For a lot of young adults, renting used to be a short stop. Now, it’s starting to look permanent. With prices rising faster than wages and down payments harder to save, more people are renting longer than ever.
Some are waiting for better deals. Some are just stuck. BMO’s data shows that 61% of Americans feel less confident about homeownership now than they did five years ago. That’s not just about cost, it’s about losing momentum.
Rent doesn’t grow wealth. It grows someone else’s. Every year spent renting is a year without equity, a year where inflation works against you instead of for you. And the longer it goes on, the harder it is to break out.
Financial Literacy Matters More Than Income
Most people think you need a huge salary to buy a home, but that’s not the full picture. What you earn matters, but what you do with it matters more.
Plenty of buyers with average incomes still manage to own because they know how to budget, how to plan, and how to stay disciplined. At the same time, high earners with luxury habits and no savings are constantly priced out.
Affordability is about understanding your own numbers. If your car payment eats your down payment, that’s not a housing crisis. That’s a spending problem. Buying a home isn’t impossible. But it takes basic math, a realistic plan, and the patience to stick to it.
Related Video: When Is The Best Time To Buy A House (I’ll Tell You)
Skipping Starter Homes Breaks the Whole System
When buyers skip the first step, the rest of the system falls apart. Starter homes were never about perfection, they were about momentum. Without them, demand piles up at the middle and top, pushing prices higher for everyone.
Builders follow that demand, leaving fewer options for anyone trying to get started. The entire market becomes a bottleneck, not because homes don’t exist, but because no one wants the ones that used to work.
Housing didn’t get out of reach, it got out of order.
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