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You know the ones. Three bedrooms, one bath, a little dated on the inside, maybe a carport instead of a garage, maybe up on piers. The smaller beginner homes most of us bought when we were just getting started. Where did they go?
My clients ask me this every week, and it sent me on a deep dive into what’s actually going on with housing affordability. Did we all just get too bougie to buy a small house? Or is something else at play? Here are the five reasons it feels like starter homes disappeared.
1. Starter Homes Got A Lot More Expensive
In June 2019, 55.1% of active home listings were priced below $350,000. By June 2026, only 37.6% were. That’s nearly a 20 point drop in the homes most first time buyers are shopping for. Realtor.com estimated there are roughly 300,000 fewer listings under $350,000 than before the pandemic. Supply has improved some since rates went up in 2022, but it’s still below where it was in 2019.
Smaller homes didn’t just hold their value, they jumped. Listing prices for two bedroom homes are up 44.5% since 2019, and three bedroom homes rose too. A modest, outdated house can now cost far more without ever getting bigger or nicer.
Then there’s the monthly payment. Realtor.com estimates the income needed to afford the typical starter home rose from about $43,000 to $78,000. Prices and rates get all the headlines, but property taxes and insurance went up too, and that trifecta is what pushes a starter home out of reach. In Louisiana we still have homes under $200,000, but hurricane insurance can run $3,000 to $5,000 a year or more, and that changes the payment a lot more than people expect.
2. Homeowners Are Holding On To Their Starter Homes
If you bought or refinanced during or before COVID, you might have a 2, 3, or 4% rate. Even if you’ve outgrown the house, moving up means trading that payment for a much bigger one. In fact, your payment would go up even if you bought your own house back at today’s rates.
That breaks the cycle that used to keep starter homes on the market. Families would buy a modest first home, build equity, sell it to move up, and use that equity as the down payment on the next one. Their old house went right back to the next first time buyer.
When owners stay longer, fewer houses come on the market. That’s less for you to buy.
The National Association of Realtors’ 2025 report found the median seller had owned their home for 11 years. Not long ago that number was seven or less. Right now most of the homes hitting the market come from life events: a relocation, a divorce, a change that forces a sale. Other owners are keeping their old home as a rental instead of selling it, because rents went up too. That’s the part first time buyers don’t hear: it isn’t that rent stayed low while home prices climbed. Everything got more expensive.
When rates do come down, expect both sides to come back at once. More buyers will flood the market, and so will sellers who finally feel free to move.
3. Investors Are Competing For The Same Homes
A lot of lower priced homes are being bought by real estate investors, and I don’t just mean the big companies that get blamed for buying up whole neighborhoods. In my opinion, they tend to go after newer construction. It’s the regular mom and pop investors buying smaller three bedroom houses, because they make great rentals with a lower cost to get in, and a few updates can add a lot of value.
Redfin found that in the first quarter of 2025, investors bought 26% of the lower priced homes sold across the 39 major metro areas it tracks. That doesn’t mean investors bought a quarter of every starter home in America, but it shows where the competition is coming from. And investors will take on the renovation work a lot of first time buyers won’t: the bad carpet, the old wallpaper, the kitchen and bathroom that badly need updating.
Financing has made this easier too. DSCR loans let investors qualify on the rent a property collects instead of their personal income. Once a rental owner buys a starter home, they tend to keep it even longer than an owner who plans to move up, so it stays off the market longer.
4. Builders Aren’t Building Starter Homes
New homes got bigger. The median newly completed single family home was about 1,500 square feet in 1973. In 2025 it was 2,142 square feet, roughly 40% larger. I grew up in a house about that 1973 size, and it felt like plenty of space.
New home sizes have come down a little from their mid 2010s peak, when a 3 or 4% rate let you buy 3,000 square feet for the payment you’d have on a much smaller house today. But they’re still big, and smaller doesn’t always mean cheaper to build. A small house still needs a buildable lot, a foundation, a roof, a kitchen, bathrooms, permits, and labor. Land, infrastructure, and development costs don’t shrink with square footage, so the big builders make better margins on bigger, more expensive homes. Zoning, minimum lot sizes, setbacks, and parking rules can make small homes even harder to build.
And most buyers aren’t buying new anyway. NAR reports about 84% of primary residence buyers buy existing homes, and only about 16% buy new construction. That’s why the shortage of affordable existing homes hurts so much.
5. Did We Get Too Bougie?
Partly, maybe. I’ve worked with clients who couldn’t let go of what they could get in a new build, even when it was way over their budget. Older starter homes have modest square footage. They might be short a bathroom or a two car garage. Today’s wish list includes open floor plans, updated kitchens, and bigger bedrooms, and some of that is keeping up with the Joneses.
But the data says buyers still want smaller homes. In one survey, 26% of buyers wanted a home under 1,600 square feet, yet only 16% of new single family homes built in 2023 were that small. The National Association of Home Builders found 35% of buyers would accept a smaller home if it meant they could afford to own. Plenty of people just want to own a home.
A first home doesn’t need to be your forever home. It can be the stepping stone that gets you out of rent and building equity.
Cosmetic updates like paint and carpet usually aren’t that expensive. Structural and safety problems are a different story. A sound, older, affordable home may serve you better than a brand new one you’re stretching for. It all comes down to separating your wants from your needs.
What This Means If You’re Buying Your First Home
Starter homes didn’t disappear. They got more expensive, harder to find, change hands less often, and now draw investor competition on top of first time buyers. That means the buyers who win are the ones who are ready:
- Be open to dated. The homes investors want are often the same ones you can afford. Cosmetic work is your opening.
- Know your real budget. Factor in taxes and insurance, not just price and rate. A real pre-approval shows you the full payment.
- Look a little further out. A short drive outside the city can open up USDA loans with $0 down.
- Use what’s available. First time buyer programs and down payment assistance can close the gap.
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Starter Home Questions, Answered
Did Starter Homes Really Disappear?
No. They became more expensive, change hands less often, and now draw competition from investors on top of first time buyers. They're harder to find, but they still exist.
Why Are Starter Homes So Expensive Now?
Prices on smaller homes rose sharply after 2019, and higher rates, property taxes, and insurance all pushed the monthly payment up at the same time. A modest, dated house can cost far more today without getting any bigger or nicer.
How Do First Time Buyers Compete With Investors?
Be open to homes that need cosmetic work, get a real pre-approval before you shop, and know your numbers so you can move quickly. Many investors win because they'll take the dated kitchen or the old carpet that other buyers walk away from.
Should My First Home Be My Forever Home?
It doesn't have to be. A first home can be a stepping stone that gets you out of rent and building equity, so you can move up later.
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