Blog posted On May 15, 2018
One of the most prevalent discussions in today’s housing market is the shortage of available homes for sale. Construction activity has yet to surpass its pre-Recession peak and in many metros, home buyers are vying over the same few available properties for sale. Starter homes especially are feeling the inventory crunch. With builders seeing more profit from larger luxury homes, they prefer to build big rather than replenish starter home inventory. As Millennials, roughly those born between 1980 and 2000, start to enter the housing market as first-time home buyers, many are skipping starter homes altogether and buying these bigger homes.
According to the National Association of Realtors (NAR) chief economist Lawrence Yun, a starter or entry-level home is typically defined as a one or two-bedroom home, and sometimes a small three-bedroom home. Starter homes can range from $150,000 to $250,000, and trade-up homes typically cost $300,000 or above, depending on the region. From 2018 to 2013, the share of Millennials purchasing homes over $300,000 increased 14%. The increase is even more significant for older Millennials (ages 33 to 37), up 24% from 2012 to 2016.
In addition to the inventory shortage, the most commonly reported obstacle to buying a home is saving for a down payment. Some Millennials have been able to grow their down payment by living at home longer. With a variety of down payment assistance options, low down payment loan programs, and vehicles to grow your down payment like HomeFundIt™, the down payment crowdfunding platform, Millennials are able to amass a larger proportion of the down payment needed to purchase a more expensive home.
In the past, homeowners will typically stay in a starter home for about five years, according to the NAR. After that, a job promotion, marriage, or starting a family may trigger a move to a larger home. However, many Millennials have delayed homeownership long enough to advance to a comfortable place in their career and qualify for the financing needed for a larger home. Another reason Millennials are buying bigger, sooner, is because they are not interested in reentering the housing market again. Because of the competitive market, Millennials are no longer seeking temporary homes, but rather a home large enough to stay.
Before you start shopping for a home, of any size, it is best to consult with a mortgage professional. Different financial situations and long-term goals will influence what type of home is best for you and your family.
Sources: USA Today