Economic Perspective: Skipping the Starter Home

MARY WALDEN:

“Today’s program looks at skipping the starter home. Mike, you and I bought our first home almost forty years ago. It was small and relatively inexpensive. As we gained income in our careers we were able to move up in size and amenities with successive homes we bought. Is our process still being repeated by today’s home buyers?”

MIKE WALDEN:

“In generations past what home buyers would typically do was they’d buy a starter home, and they’d stay in that for a while. But they would expect that as their income rose they could afford a bigger house, and they’d make value on that starter home as the value went up. So you would trade several times in order to get to the house that you wanted.”

“What we’re seeing today is a new trend that is the first time home buyers tend to skip the starter home, and they go directly to the home, maybe it’s not their perfect home, but they go directly to a home that they think they’re at least going to stay in a while and fits more of what they consider to be the perfect home. And they do this by delaying buying that first home. Now the question is, ‘Why has there been this change?’ Why are new home buyers today skipping that starter home?”

“Well I think a couple reasons. One, the housing collapse that we saw during the Recession has caused many young buyers to think, ‘Hey, you’re not necessarily going to be able to buy that starter home and see it go up in value,’ because they remember when housing values went down. So they want to skip that step and go to the second home. Secondly, they may not want to go through the hassle of moving several times. They want to find that right house in the right neighborhood with the right schools and settle down there.”

“So this is having a big, big impact on the housing market because starter homes were traditionally a very, very important part of the housing market. They seem, now, to be disappearing.”