The Shortage of Starter Homes Extends Beyond Major Cities

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For first-time buyers looking for starter homes in this year’s hot housing market, a decadeslong trend could further delay this long-awaited money milestone.

The supply of entry-level housing, which Freddie Mac defines as homes up to 1,400 square feet, is near a five-decade low, and data on new construction from the National Association of Home Builders shows that single-family homes are significantly bigger than they were years ago.

Homeowners from previous generations had access to smaller homes at the start of their financial lives. In the late 1970s, an average of 418,000 new units of entry-level housing were built each year, according to data from Freddie Mac. By the 2010s, that number had fallen to 55,000 new units a year. For 2020, an estimated 65,000 new entry-level homes were completed.

“You can really draw a straight line from the 1940s down to the most recent years, which is really striking and also very concerning,” said Sam Khater, chief economist and head of Freddie Mac’s Economic and Housing Research division.

Mr. Khater said he initially expected to see this drop most acutely in historically expensive metropolitan areas such as New York and San Francisco. But looking across the country, he saw that house hunters in many different areas were facing the same problem.

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