Are First-time Homebuyers Snubbing ‘Starter Homes’ in Favor of Forever Homes?
As young adults, my husband and I bought our first home in the late 1980s in a suburb of Los Angeles. It was 800 square feet, located in a working class neighborhood that was a commutable distance from our jobs.
However, it proved to be a good investment. Years later, when we moved to San Diego we found we could afford to buy a larger home. As our family grew, we’ve moved twice more to larger homes to accommodate a family of six.
That Was Then
That concept of a starter home is “quickly becoming a real estate relic, like track lighting and brass hardware,” notes a recent article in USA Today.
A starter home might be described as “smaller, it’s cheaper, and in an area that might not be in an area where you eventually want to settle down,” Issi Romem, chief economist for BuildZoom, a real estate construction marketplace, tells USA Today. That pretty much sums up my first house.
But today’s first-time homebuyers aren’t looking for homes like those. They seem content to wait until they’ve saved enough to skip the starter home. A Bank of America study finds about 75 percent of first-time homebuyers want “long-term options,” and 35 percent plan to retire in the first home they buy. “Today’s aspiring homebuyers want to be selective and believe they should wait until they can afford to buy a home they’ll live in for years to come,” notes D. Steve Boland, Consumer Lending executive for Bank of America.
Research from the National Association of Realtors® backs that up. First-time homebuyers are “buying and staying put.” “When they do purchase, they’re planning on living there longer than buyers that we’ve seen in the past,” says Jessica Lautz, NAR’s managing director of survey research, tells USA Today. “They’re expecting to live there 10 years.”
Affordable Home Shortage
Because many areas have a low housing inventory and new construction in some is focused on luxury condominium and apartment buildings, homes that could be considered entry-level — affordable for first-time buyers with modest incomes — may now “exceed starter home prices,” says the article.
And that’s changing the demographics of first-time buyers. “Novice homeowners have become ‘a financially select group’— not everyone who would have become a first-time homebuyer a few years ago can become one now,” Romem tells USA Today.
“So those homebuyers who probably would have been looking for the lowest-end homes 10 years ago during the housing boom are today just not able to buy. And those that are able to buy are looking further upmarket,” he adds.
NAR’s research also finds that 80 percent of first-time homebuyers purchase single-family homes.
And they’re able to buy larger, new homes with more bathrooms and multi-car garages. Annual data from the Census Bureau shows that the proportion of single-family homes completed in 2015 with four or more bedrooms and three or more bathrooms has been on the rise since 1987.
“Buyers today, as much as they say, ‘I want a starter home,’ they want the second one up,” Gina Giampietro, a Realtor for Re/Max Select Realty in the Pittsburgh area, tells US World and News Report.
Is There a Future for Starters?
So is the idea of a starter home passé? Romem thinks not. But, he adds, buyers may have to face the new realities of home prices and downsize their dreams.
“I think that one solution for people who are finding it hard to afford a home today is to seriously consider which city they want to live in,” Romem tells USA Today. “It’s extremely hard to be a first-time homebuyer in the expensive coastal cities — not just in San Francisco, but in L.A. and Seattle, and on the East Coast as well.”
Romem suggests buyers consider more affordable locales, such as Texas, Atlanta, or parts of the Midwest.
That might be the message young would-be buyers need to hear. The Census Bureau has found that just 36 percent of Americans under the age of 35 own a home. That’s down from 42 percent in 2007 and the lowest level since 1982, when the agency began tracking homeownership by age.
Yet most young Americans still aspire to buy a home. According to Fannie Mae’s National Housing Survey™ (NHS), a substantial majority of renters ages 25 to 34 say that owning makes more sense than renting from a financial perspective. A majority also agree that owning makes more sense than renting from a lifestyle perspective. The vast majority of Millennial renters say they plan to own a home at some point in the future.
“It’s a big deal to move, but that can make the difference between being able to buy a home and being a renter until the day you retire,” Romem tells USA Today. “To be realistic, first-time homebuyers should just accept a condo — or accept that they need to move to Texas,” he says.
Source: More first-time buyers skip starter home stage for bigger, better, by Hal Bundrick, published by USA Today, July 16, 2016.