Are Starter Homes a Thing of the Past?

MARY WALDEN:

“Today’s program asks, ‘Are starter homes a thing of the past?’ Mike, in home buying there was a typical path most households would follow. With limited income, their first home would be small and was called the starter home. With luck, the owner could sell that home, make some money, and use the proceeds to buy the next larger home.”

“The process could take several sales until the ultimate home was purchased, but is this process the way home buying is done today?”

MIKE WALDEN:

“The answer is no. We’re seeing many young people, Millennials, next generation behind them, are waiting longer to buy their first home, and when they do buy that first home they want it to be closer to perfect. Their long-life home if you will. And I think this change in the home-buying process is based on a lot of different things.”

“First of all, the younger generations, Millennials and iGeners, it’s taking them a longer time to get ready to buy a home because they’re staying in school longer. When they come out of school they often have debt. They have to wait until they pay down on that debt before they’re ready to buy a home.”

“I think also the notion of owning a home as a good investment, that was tarnished by the Great Recession. And although we’ve seen home appreciation rates improved, homes went through a lot of years where they didn’t appreciate. Sometimes they depreciated. So I think that’s weighing on those college graduates.”

“So I think the whole process here has changed, and that in some sense we’re taking the training wheels off of home buying. We’re not getting those starter homes like you would get a starter bike. Instead those young people, they’re being willing to wait until they accumulate the money to get what they really, really want in a home.”

Mike Walden is a William Neal Reynolds Distinguished Professor and Extension Economist in
the Department of Agricultural and Resource Economics at North Carolina State University who
teaches and writes on personal finance, economic outlook and public policy.

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