Starter homes used to be an important part of the American dream because they were affordable enough to help younger adults gain entry to homeownership. The idea was that you would live in the home for a few years, keep your mortgage payments low, and then move up to a bigger house as your family and bank account expanded.
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However, that idea is falling out of favor with a growing number of younger Americans, according to the BMO Real Financial Progress Index report from the BMO banking company. It found that out of 2,500 responders, roughly two-thirds of Gen Z renters (66%) and 61% of millennial renters said buying a starter home and upgrading to a bigger one a few years later “makes no sense anymore.”
According to BMO’s results, this indicates that younger generations are more interested in buying a home for the long term.
One reason younger Americans are shying away from buying starter homes is that homeownership of any kind has become more difficult in recent years due to skyrocketing housing prices.
“The financial hurdles to owning a home have rarely been higher, especially for young households that don’t yet have their foot in the door,” said Scott Anderson, chief U.S. economist at BMO in a press release. “Poor housing affordability, limited inventory of existing homes, and rising interest rates make finding the right home that fits your budget a challenging endeavor.”
The BMO survey found that about 7 in 10 millennials (71%) and Gen Zers (69%) consider homeownership a “significant life aspiration.” But it has become increasingly difficult to find the kinds of starter homes that used to be plentiful in the U.S. housing market, experts say.
“True starter homes are scarce for first-time buyers today,” Jenna Stauffer, an agent for Sotheby’s Realty, told Good Housekeeping in a recent interview. “The move-up market just doesn’t exist like it used to. Between high prices, interest rates, taxes and insurance (a lethal combo), it makes upgrading tough.”
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Despite the current challenges, younger Americans continue to make gains in the U.S. housing market, though they still lag well behind their older cohorts.
Just more than one-quarter (26.3%) of adult Gen Zers owned a home as of 2023, according to Redfin data. That was roughly the same percentage as the previous year.
The homeownership rate for millennials climbed to 54.8% in 2023 from 52% in 2022, according to Redin. In contrast, homeownership rates for Gen X were 72% in 2023 and 70.5% in 2022. Baby boomers had the highest percentages, at 78.8% in 2023 and 78.7% in 2022.
