For millennial and Gen Z homebuyers, purchasing a starter home may be a thing of the past.

Nearly 40% of Americans between the ages of 25 and 44 who bought homes last year plan to stay in them for 16 years or more, according to data from the National Association of Realtors. For homebuyers between the ages of 18 and 24, that number jumps to 48%.

A starter home is usually the first home a person or family is able to purchase. It tends to be a smaller and less-expensive dwelling the homeowner only lives in for about three to seven years as they save up for their "forever home."

But the concept of buying an entry-level home that quickly appreciates in value so you can sell it after about five years seems to have gone out the window, Jessica Lautz, NAR deputy chief economist and vice president of research, tells CNBC Make It.

That's mostly because those who were able to purchase homes last year likely locked in a low mortgage rate, she says.

The average rate for a 30-year fixed mortgage was around 5.7% on June 30, 2022, according to Freddie Mac. As of July 6, 2023, the average rate is about 6.81%.

Many homeowners have even lower rates. Currently, nearly two-thirds of all homeowners have mortgage rates at or below 4%, according to Black Knight, a mortgage software and analytics company.

"Unfortunately, many potential sellers have ghosted the market this spring, concentrating buyer demand on the few listings that do come to market and fueling price growth, especially for more affordable and well-presented houses," Jeff Tucker, Zillow senior economist, said in a May press release.

Affordable homes are hard to find

As of May, the typical starter home cost about $179,407 nationwide, according to Zillow data provided to CNBC Make It. Zillow defines a starter home as one that usually has one to two bedrooms, one bathroom, around 750 square feet to 1,250 square feet of space and is usually located in a suburb.

But it's becoming harder to find such homes.

Only about 11% of homes sold in the first quarter of 2023 were priced below $300,000, per the U.S. Census' data on new home sales. In April, the average new home sold for about $501,000, and the median new home price was $420,800.

Higher housing costs can mean larger down payments, which can take longer to save up, says Lautz. To that point, the median age of homebuyers rose from 33 in 2022 to 36 this year, according to NAR's data — the highest ever.

More millennials are becoming homeowners

That's not to say current market conditions are deterring new homebuyers altogether. "Even though interest rates are as high as they are right now, we still do see multiple bid situations just because of the lack of supply," Lautz says.

Young people are among those looking to buy. But it seems they're interested in making longer-term purchases, rather than settling for a starter home they'll sell after a few years.

About 56% of both Gen Zers and millennials who hope to own a home plan to purchase one in the next two years, according to Bank of America's "2023 Homebuyer Insights Report." For the first time last year, millennial homeowners outnumbered renters, according to U.S. Census data.

In 2017, a little over 11 million millennials owned homes, per RentCafe's analysis. But between 2017 and 2022, the number of millennials who own their homes increased 64% to 18.2 million.

How more young people can get into the market

For the millennials and Gen Zers who haven't yet become homeowners, one thing is clear: There's no such thing as perfect timing. While some potential homebuyers may be waiting for the housing market to cool, it's impossible to know whether it's better to hold off or go ahead and purchase a home, says Lautz.

"It's an incredibly personal decision," she says.

Instead of attempting to time the market, Lautz recommends asking yourself questions such as, "How long do you plan on staying in the home?" and "Do you feel like you're financially stable in your career?"

Even though starter homes may be a thing of the past, it's still possible for young people to become homeowners. In fact, Lautz says the biggest misconception about homebuying is believing you can't do it.

"A lot of people feel discouraged right now by the housing market, but I would say take a look at low down payment options," she says. "A lot of people think you need 20% down for a down payment, when the typical down payment is significantly less than that for a first time homebuyer."

The U.S. Department of Housing and Urban Development can be a great resource for information on low down payment options, she says. Options such as a Federal Housing Administration loan require a down payment as low as 3.5% for credit scores of 580 and higher, according to Rocket Mortgage. If you can make a 10% down payment, your credit score can fall within the 500 to 579 range.

"I know it's really difficult right now, but we are seeing buyers successfully enter into the market as first-time homebuyers," Lautz says. "They're making sacrifices, but they're finding a way."

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