Many first-time homebuyers are feeling discouraged. Despite saving over many years, building strong credit and carefully scouring listings in desired neighborhoods, rising home prices and few newly constructed single-family houses mean the starter home is no longer an option.

But the secret to homeownership in the current market may be the type of home you buy – and where you buy it.

When apartment listing site Abodo released a study last month examining millennial homeownership using data from the U.S. Census Bureau, it found millennial homeownership rates are highest in small to midsize metro areas.

Just 17.8 percent of millennials in the Los Angeles area are homeowners, according to the report, with New York City and San Diego both at 19.8 percent. Compare that to 42.4 percent millennial homeownership in Minneapolis and 40.2 percent in St. Louis, which Sam Radbil, senior communications manager for Abodo, points to as some of the most diverging statistics when looking at larger cities.

[See: The 25 Best Affordable Places to Live in the U.S. in 2017.]

While housing costs as related to income may be less in these Midwest cities overall compared to the larger, coastal metro areas, hope is not lost for people looking to purchase a home for the first time. It’s simply a matter of reevaluating what you may have originally pictured as your first home.

Builders and developers nationwide are aware of the obstacles many first-time buyers – millennials in particular – are facing as more and more reach the point where they wish to stop renting and start owning.

While low-price houses aren’t being built in significant numbers, new construction is aiming to capture all the wants and needs of aspiring homeowners today – close proximity to shops, restaurants, quality schools, parks, pools, work or public transportation – and they’re doing it by building entire communities, with homes largely made up of condominiums.

Growth in condo construction is more a reaction to consumer demand than many first-time homebuyers may realize. Priorities have shifted over the years, so even when people move to the suburbs, they want close proximity to work and play, says Ana Codina Barlick, CEO of South Florida-based Codina Partners, which is currently developing the Downtown Doral community in a rapidly growing suburb of Miami.

“Time seems to be becoming more and more valuable – people’s lives seem to be getting busier and busier,” Codina Barlick says.

To find enough land to create these new communities from scratch, developers look for neighborhoods that held a prior use – like an industrial district – near suburbs that may have previously been considered a bedroom community, where people sleep but spend all their time downtown.

With these communities, the amenities of a major city are being condensed into neighborhoods and suburban developments – ultimately reducing the amount of time it takes to go grocery shopping, drop kids off at school, get to and from work and go to the gym, along with anything else you want to do.

[Read: Is the Renting Trend Turning Around?]

In Downtown Doral, for example, an elementary school already exists, with a middle school and high school in development. The continued growth of the area makes it so those young families who liked all the convenience of proximity don’t have to compromise later, when their children are older. And with some single-family houses in the development as well, residents are able to remain in the center of the community even if their housing preferences change over time.

Because the amount of space your daily world takes up is shrinking, it may make sense for the property you purchase to shrink as well, and Codina Barlick says many buyers are preferring this smaller footprint to a house that's farther away. “That preference has outweighed the desire for having your own single-family home with a backyard, though there are some people that still want that,” she says.

When it comes to a community setting itself apart from another, “It depends on how you amenitize the area,” says Christa Huffstickler, president and CEO of luxury real estate agency Engel & Volkers Atlanta. Condos are built with today’s buyer in mind, offering indoor-outdoor transitional living, hotel-like amenities and an effort to balance parks and commercial attractions.

As you search for your first home, consider these five strategies.

Consider the city you live in. You’ve likely been living as a renter in your area for some time, so you should have some understanding of what the cost will be and which neighborhoods or suburbs most realistically fit your budget. If you live in a city with single-family houses lining most streets, then an existing house may be a possibility.

If you live in a pricey metro area, a condo in a newly developed community in a suburb might be less of a compromise than you may think and slightly less costly than a downtown condo.

Check out neighborhoods that aren’t completed yet. Many of the mixed-use communities begin selling condos, townhouses and detached houses before completion, Huffstickler says. If you’re willing to buy before seeing the whole neighborhood as a final product, you may be able to get in for a slightly lower price, or at least the specific space you have your hopes set on.

Ask about all housing options. Many areas currently in the development stage, like Downtown Doral, offer a variety of housing types from rental to owner condos, townhouses and even detached single-family houses. If you’re willing to pay the higher price for a detached house over a condo, you might find the developer has designated plots for that purpose that simply haven’t been built yet.

Don’t expect a huge discount to urban life. Unless it’s a government-funded project, you’ll likely find all new construction is on the luxury end of housing prices, so don’t expect a major bargain when buying a condo in a new suburban community. You’ll likely see a slight discount to prices in the downtown of the major city, due to a slightly smaller pool of buyers.

[Read: With Rising Interest Rates, Is Now Still a Good Time to Buy a Home?]

Prioritize your savings. If jumping into homeownership sooner rather than later is important to you, there’s no shame in cutting corners in order to put every spare penny away. The more you save, the more likely you are to find a mortgage program that is better for you in the long run.

“If homebuying is a priority, spend less on rent and less on unnecessary expenses to devote more to the down payment fund,” Radbil says.

Tags: real estate, housing market, new home sales, pending home sales, existing home sales, home prices


Devon Thorsby is the Real Estate editor at U.S. News & World Report, where she writes consumer-focused articles about the homebuying and selling process, home improvement, tenant rights and the state of the housing market.

She has appeared in media interviews across the U.S. including National Public Radio, WTOP (Washington, D.C.) and KOH (Reno, Nevada) and various print publications, as well as having served on panels discussing real estate development, city planning policy and homebuilding.

Previously, she served as a researcher of commercial real estate transactions and information, and is currently a member of the National Association of Real Estate Editors. Thorsby studied Political Science at the University of Michigan, where she also served as a news reporter and editor for the student newspaper The Michigan Daily. Follow her on Twitter or write to her at dthorsby@usnews.com.

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