Four years ago, a story caused USA Today writer, Judy Rose, to ask: “When did a new, $300,000, four-bedroom house become a starter home?”
To be expected, it was couched as a question about Those Darn Millenials, who “want granite in the kitchen, stainless steel appliances. . .hardwood floors.” The article goes on to lament that older generations didn’t have the access to such large homes.
This growth wasn’t a change in homes getting cheaper, but rather a change with buyers having more money—new home buyers are more likely to have more than one income than their parents’ generation, and they’re more likely to marry late (six years later, on average, meaning that they’re buying not as budding college grads, but as established professionals). And while they may not have kids yet, they’re buying big in anticipation of kids in the future.
That was four years ago.
Current numbers show that new construction is focused on apartment buildings and luxury condominiums, not new homes. And with a high demand for starter homes and a lack of new construction, prices are going through the roof.
And, truth be told, those in the starter home market still don’t want the kind of starter homes their parents and grandparents had. “Buyers today, as much as they say, “I want a starter home,’ they want the second one up,” says Gina Giampietro in a recent article in US News and World Report titled “Where Have All the Starter Homes Gone?” “Traditionally, a starter home requires some elbow grease to make it a comfortable place to call home, and homeowners stay for a just a few years while they build their savings to buy a larger home. . . It’s often not realistic that a buyer’s wish list will keep them in an entry-level price range.”
All of which seems to be blaming the Millenials again. And, while I slimly avoided that demographic, the social demographics geek in me gets twitchy when huge swaths of people get mocked just because older generations decided to hand out participation trophies. (Those trophies aren’t Millenials’ fault, Gen X and Baby Boomers.)
So what’s going on in the construction industry that could explain both this demand for high quality and out-of-control prices? For starters, in 2015, 75 percent of all multi-family construction was luxury apartments, putting condos and townhouses—which used to be a staple of starter homes—out of the market.
And some markets are more out of control than others. Denver, a market that saw a 5% population increase between 2010 and 2014. While an entry-level home in Orlando, Florida, is considered to be $200,000 or less, Denver’s market is $400,000 to get your foot in the door.
What is a new home buyer to do? Devon Thorsby, the Real Estate editor at US News and World Report, makes three recommendations:
1. Manage expectations. Many people grow up, get married, and want to move into the same neighborhoods and home-types that they grew up in—not realizing that their parents didn’t (usually) start out there. You have to buy what you can afford and work your way up.
2. Get ready to roll up your sleeves. A starter home may need a little work. While you probably shouldn’t expect to be able to do a full house makeover, as though you’re on a TV—because that costs a lot of money—you can definitely make the house more saleable with a little effort.
3. Finally, consider waiting. Yes, it’s a good thing to build up equity and homes can be good investments, it’s very possible that making interest-heavy mortgage payments and paying property taxes can be more expensive than just renting.