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Millennials Are Skipping Starter Homes for Their Dream Home

A new trend has begun to emerge. With home prices skyrocketing in the starter home category, many first-time homebuyers are skipping the traditional starter homes and moving right into their dream homes.

What’s a Starter Home?

According to the National Association of Realtors (NAR), simply put, a starter home is a one or two-bedroom home (sometimes even a small, three bedroom). “Prices vary widely by market but starters on average cost $150,000 to $250,000 while trade-up and premium homes cost upwards of $300,000.”

Finding Their Forever Homes Now

A recent CNBC article revealed that there are many factors that delayed older millennials (ages 25-35) from buying a home earlier in their lives. The aftereffects of the Great Recession teaming up with larger education costs forced many to either remain living in their parent’s homes or to rent. With the economy continuing to improve, many millennials have been able to break into better-paying jobs which has helped spur down payment savings. As the dream of homeownership comes closer to reality, many millennials are saving for their forever homes.

According to the latest statistics from NAR, 30% of millennials bought homes for $300,000 or more this year (up from 14% in 2013). Diane Swonk, Chief Economist at Grant Thornton weighed in saying, “They rented for longer. Now they’re going to where they want to stay.”

More and more millennials are settling down, getting married, and starting families, which is a huge factor driving them to look for larger homes.

Increased competition in the starter home market has also been a driving force in waiting to afford their dream homes. Inventory in the starter home market is down 14.2% from last year, according to research from Trulia. This has driven prices up and has led to bidding wars. Many first-time buyers who were originally looking for starter homes are realizing that for just a little bit more of an investment, they could afford trade-up or premium homes instead.

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The Latest On Where Home Prices Are Headed

Home prices are a top concern for both home buyers and sellers. After all, a lot of the calculus that goes into determining whether or not it’s a good time to sell or buy a house is based on where home values are and where they are expected to be in the future. For that reason, it’s good to follow the S&P Case-Shiller Home Price Indices, as they are considered the leading measure of U.S. home prices. According to the latest data, prices have continued to rise at around the same pace they’ve been increasing, with both month-over-month and year-over-year data showing little change. In short, prices are going up but no faster than they have been. David M. Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices, says things aren’t expected to change any time soon. “Unless inventories increase faster than sales, or the economy slows significantly, home prices are likely to continue rising,” Blitzer says. But despite rising prices, Blitzer notes that the market is calmer today than it was during the last price boom in the early 2000s. More here.

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Why The New Home Market Matters To You

If you aren’t in the market for a new home, why should you care about the new home market? Well, for starters, it plays a very important role in the health of the housing market. And that affects all buyers, not just new home buyers. How? Simply put, new home construction is the quickest way to add homes for sale to the market. And, when more homes are added, buyers can be more choosy, which results in less competition and fewer home price spikes. In other words, when new homes are being built and sold, the overall real estate market benefits, including buyers looking for an existing home in a more affordable price range. So, if that’s true, how’s the new home market doing? According to the latest numbers from the Commerce Department, new home sales were 11.6 percent above last year’s level in April, which is good. But, though year-over-year numbers are positive, recent revisions to totals from the first three months of the year were revised downward, indicating some lingering weakness in the market. More here.

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What Is The Most Prosperous City In The US?

Prosperous is defined as “successful in material terms; flourishing financially.” And, while money isn’t everything, it’s safe to say we all want to be successful and wouldn’t mind flourishing financially. So where in the country is the best place to live if you want some prosperity? Well, the answer might surprise you. That’s because a new study – looking at factors such as population, median income, home values, share of inhabitants holding higher education degrees, poverty rate, and unemployment – determined that Odessa, Texas was the the top city for prosperity, beating out heavy hitters like Washington DC, New York, Los Angeles, Atlanta, and Charleston. So what about Odessa makes it the most prosperous city in America? Well, from 2000 to 2016, the city experienced a 38 percent spike in income growth, home values rose 91 percent, and the poverty rate dropped by 36 percent. Those are some impressive numbers but the story behind the story is that Odessa benefited from a surge in crude oil production, which boosted the city’s fortunes and lifted it to the top spot on the list. More here.

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Changes Come To The Luxury Home Market

The high end of the real estate market has followed a different path since the financial crisis and housing crash. But while the luxury home market was able to avoid some of the ups-and-downs the rest of the market has endured, things are beginning to change. In fact, one recent analysis shows the number of homes for sale priced at or above $1 million dollars fell significantly during the first quarter of this year, as compared to the year before. And, if inventory continues to drop, the luxury home market could see some of the spiking prices and competition for available homes that buyers have found in more affordable price ranges. However, those this may be true, the effects have, so far, been far more muted than in the overall market. For example, the average luxury home was on the market for 82 days during the last quarter. That’s faster than the same time last year but much longer than the overall average. For comparison, the National Association of Realtors’ most recent numbers show the typical existing home was on the market for just 30 days, with 50 percent of homes sold in less than a month. More here.

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The Best Markets For First-Time Home Buyers

Buying a house in a competitive market can be challenging, even for buyers that have been through it before. Getting into a bidding war with another buyer means possibly pushing your budget, or worse, losing the house you set your sights on. But finding and buying a house in a competitive market is especially intimidating for a first-time buyer, who may already be a little overwhelmed by the process. The good news is that, though there are generally fewer homes available to buy across the country, not all markets are equally competitive. For example, a recent analysis of housing markets looked for those that have available homes, smaller down payments, and a strong home appreciation forecast – in other words, areas that would be favorable for first-time buyers. According to the rankings, cities like Tampa, Orlando, Houston, Atlanta, and Las Vegas have more opportunities to buy an affordable, entry-level home than in other markets where inventory is tighter and there is higher demand. In short, there are still opportunities for buyers, so it’s a good idea to look into the dynamics of your desired neighborhood before talking yourself out of buying this year. More here.