The Death of the Starter Home
Money Talks News
Aug 11th 2015 5:00AM
. . . In fact, you could argue — and I will — that starter homes are basically disappearing. They aren’t being built, and those that exist are either falling into functional disrepair (they are old), or more likely, being snapped up by investors to rent to young families.
First, a little housing lesson. Back in the postwar boom, America’s housing industry was on fire. Single-family housing starts jumped an incredible 400 percent during the decade. According to this great housing history, in 1950, the average price was $11,000. For perspective, median income, in real dollars, was about $3,300.
But here’s the number to watch: the average home was 963 square feet. A majority of homes had two bedrooms and one bathroom.
By 1972, prices had jumped to $30,000 while family income was nearly $10,000. Homes, which typically had three bedrooms and at least a bath and a half, now averaged 1,600 square feet. That kind of house can pretty comfortably shelter a family with 2.3 children. . .
[snip]
But that’s why there’s “used” homes, right? Young families are supposed to buy a needs-TLC place in their 20s, fix it up and trade up to their dream home later.
The problem is that cheaper, older starter homes are nearly as hard to find. Here’s one piece of evidence: The folks at RealtyTrac ran the numbers for me, and it turns out that year-to-date sales of sub-$200,000 homes is down this year compared to the last three years. That’s strange, given that sales above $200,000 are up. For example, two years ago, there were 395,000 sub-$200,000 homes sold from January to May. This year, there were only 343,000. Rising prices can’t account for more than a fraction of that drop.
Worse yet, families who would buy cheaper homes are being edged out by investors who buy the homes and rent them out. Nonoccupant buyers of single-family homes hit a record last quarter, according to RealtyTrac. . .
This is an excellent article about today’s buiders being unable to make a profit building “starter homes” and millennial first-time buyers (FTB’s) being “too picky” and unwilling to buy an older home is from a nationwide perspective but I still take umbrage with the message it is sending. I don’t believe builders have a “duty” to build “starter homes” or any type of home, for that matter. AFAIK, they can build whatever they can manage to secure permits for in a particular jurisdiction as well as whatever project also pencils out for them, attached or unattached.
I DO believe there are a sufficient number of “starter homes” in any given market (flipped and unflipped) for FTB’s to choose from (except in well-known expensive cities, such as SF and “resort areas”). The problem is that most agents who work with FTB’s carry no listings of their own, have little sales experience and tend to attempt to service buyers over a very wide area (ex: one whole or more large counties instead of a specialized micro-area) in attempt to eek out a living with little to no past referrals. Therefore, these agents don’t have relationships with agents in any particular micro-area and thus aren’t aware of any “pocket listings,” which are typically flipper-team-owned properties (where one “partner” on the team is an agent) or probate properties. THIS is where the “older” starter home inventory can be found and a FTB and/or their newbie agent across town would not know about these listings because they can’t see the sign in the yard of a property not listed on the MLS aggregators. (A CA agent can still write in a commission for themselves in an offer on a pocket listing.)
The article also infers that young dual-income couples today (residing in US real estate markets with a pop of over 500K) with a child and another on the way are now “stuck” in a “one-bedroom apt” essentially because no starter-home tracts are being built in the US today. I believe that presumption is patently false. When their lease is up, no tenant is “stuck” living anywhere. In SD County, these couples can easily go out and rent an older-but-partially-or-fully-remodeled 2-3 bdrm/1-2 bath “starter home” with a fenced backyard for their kid(s) for zero to $400 more a month (depending on area) than they are paying in rent for their “luxury” or “coastal” one-bdrm apt from one of the many buy-and-hold flipper teams around the county. This will accommodate their growing family while they save more downpayment and go through the laborious mental process of “getting real” about the local housing market they live in.
The REAL problem that I see here is that these whining millenial would-be buyers’ current apt often has granite countertops, underground parking, a pool, spa and a gym and this typical luxury apt inhabitant considers it a “downgrade” to rent a “starter SFR” just a bit inland or away from the high-rise hustle-bustle or both. According to the article, this phenomenon is prevalent all over the nation.
In my experience, FTB’s in CA coastal counties have never been “guaranteed” availability of new or newer construction to buy for their first home. Why should it be any different now? To get on the homeownership ladder, everyone has to start somewhere.
