The death of the starter home...

[TheHaitian]

I know we have talked about it a few times here and I found this article :

www.dailyfinance.com/2015/08/11/death-of-starter-homes/

"I had a depressing conversation recently with someone who does big housing construction deals for a big bank. There's only two types of deals that work, he said: 1) Building pricey, premium, granite-countertop homes for well-off folks, or 2) Building affordable housing with government subsidies. Roughly speaking: There is construction for the rich or the poor. Nothing in between.

Most important, nothing for that apartment-dwelling couple with a toddler and a baby on the way. That's the lament I hear from all my urban friends around the country. Where can I start my family? Where is my starter home?

It's gone. Builders and banks just can't make money off humble homebuilding, or at least they think they can't."

So has starter homes been replaced by condos or town homes in a sense? I say in a sense because in my neighborhood some townhouses are selling for more or same amount as my house...

[TheHaitian]

And why is dual income families always to blame?

"Housing expert and loan officer Logan Mohtashami talks about the "cracked equilibrium" that has led to this state of affairs: Dual-income parents with decent jobs shut out of the housing market because there's nothing but luxury homes to buy, trying to stick it out in their one-bedroom apartment. "

[emma1420]

This is completely dependant on where you live.  There are plenty of great starter homes where I live in the Midwest.  Many of them are older, but you can get a 1400-1800 sq ft home with 3-4 bedrooms and a couple of bathrooms for well under 200k (there are several older subdivisions (built in the 60s & 70s) in my home town where the average home price is around 160k-170k).  They aren't always in the best neighbourhoods, but they are in decent safe neighbourhoods.

i also think that many first time buyers have unrealistic expectations of what a starter home should look like.  Thirty years ago, a basic home with the appropriate amount of bedrooms, that was clean and maintained was what many families were looking for.  Now, it's granite, stainless steel, finished basements, etc.  In HCOLA, I think a townhouse is a great choice. At least that is what I would be looking for if I lived in that sort of area. 

[Cookies Galore]

I guess it all depends on where you live and what you consider a starter home. We are getting priced put of the town where we currently rent (and we stay in our apartment because rent is crazy cheap for the area) but we are planning on buying in the next town over because they actually have homes under 200k. I have no interest in buying too much house and I'm already so used to low housing costs.
It's just the two of us and a couple of cats so I guess the kind of home we'll end up buying is someone else's starter home (majority of houses in my area are twins and row homes). I'll be mid-30s by the time we buy; I'm not "starting" anything. I'm going to buy the damn place and not moving again until hubs agrees with me that buying a trinity in Philly is the way to go.

[skubikky]

www.nothnagle.com/Properties/Details.aspx?MLS=19&M=R276222

www.nothnagle.com/Properties/Details.aspx?MLS=19&M=R278498

www.nothnagle.com/Properties/Details.aspx?MLS=19&M=R278369

[haapai]

I live in the Midwest and I have no idea what this guy is talking about.  There are plenty of starter houses for sale on my block and most of them will sell for under $100K and the monthly payments on these 60-year old houses will not be stable.  They need a lot of work, so the cost of owning one will jump around significantly.  The mortgage payments won't be particularly frozen either.  When taxes and insurance equal the note, your mortgage payment is in no way frozen. 

[NomoreDramaQ1015]

The majority of the area I live in is what would be considered 'starter homes'.   All the houses in my neighborhood are post WWII houses.   Most sell for well under $100k.

Course we all know the reason houses are so cheap here is b/c we live in the middle of nowhere with our dogs named Courage.

[thyme4change]

Aug 11, 2015 6:56:55 GMT -5 TheHaitian said:

It's gone. Builders and banks just can't make money off humble homebuilding, or at least they think they can't."

.

That is because every 20-something year old thinks that houses are completely unlivable without granite counters, 40 inch stoves, 2 sinks in a master bathroom, high quality hard wood, and (worst of all) 2,500 square feet of living space.  Bring back laminate floors and builder's grade cabinets, and now you actually have a starter home.  

I have met young, broke people that wouldn't be caught dead in my house. 

[Cookies Galore]

Aug 11, 2015 8:28:08 GMT -5 skubikky said:

www.nothnagle.com/Properties/Details.aspx?MLS=19&M=R276222

www.nothnagle.com/Properties/Details.aspx?MLS=19&M=R278498

www.nothnagle.com/Properties/Details.aspx?MLS=19&M=R278369

The first two are cute! But wow taxes!

[chiver78]

Carl, it's because of where we live. you've seen pictures of my new house. if you took my <1200sf 3/2 Cape and dropped it in the middle of the country, it would likely be half the price I paid for it where it is.  

I totally agree with thyme though - too many people think they absolutely have to have granite, stainless, etc from day 1. people need to stop watching HGTV

[teen persuasion]

Aug 11, 2015 8:28:08 GMT -5 skubikky said:

www.nothnagle.com/Properties/Details.aspx?MLS=19&M=R276222

www.nothnagle.com/Properties/Details.aspx?MLS=19&M=R278498

www.nothnagle.com/Properties/Details.aspx?MLS=19&M=R278369

Wow!  I thought Fairport was pricy - those are excellent prices for the area.  Is that first one actually ON the canal?  Though I don't like those tax bills - are village taxes high?

[skubikky]

Aug 11, 2015 8:44:17 GMT -5 teen persuasion said:

Aug 11, 2015 8:28:08 GMT -5 skubikky said:

www.nothnagle.com/Properties/Details.aspx?MLS=19&M=R276222

www.nothnagle.com/Properties/Details.aspx?MLS=19&M=R278498

www.nothnagle.com/Properties/Details.aspx?MLS=19&M=R278369

Wow!  I thought Fairport was pricy - those are excellent prices for the area.  Is that first one actually ON the canal?  Though I don't like those tax bills - are village taxes high?

Well, to be fair, both are 1 bathroom, but yes, I would suspect higher taxes.   village taxes are high but the offset is the lower Fairport Electric rates. 

[Deleted]

I agree on the builders wanting to build bigger homes for more profit. I guarantee you that if I showed a builder my vacant lot and asked for a 3-BR, 2-bath house with a decent-sized kitchen, it would cost WAY more on a square-foot basis than a McMansion.   Otherwise the builder can't make enough money on it. 

I hadn't thought about the part of investors buying the older, smaller houses and renting them out. That may not be all bad. After the financial markets meltdown, many financial writers said that maybe we'd exceeded the optimum % of home ownership in the US and we needed to question the assumption that the more people we have owning homes, the better.  I think a lot of the first-time homeowners didn't know anything about maintenance and didn't have the money for it anyway, so the places fell apart.

There's another factor at work here and I've heard/read it from a few sources:  construction costs are going way up because so many people in the construction industry retired or went into other work when building stopped.  DH and I looked at some new construction and were not impressed with what you got for the price:  the requisite granite in the kitchen but crappy prefab tub enclosures in the bathroom, for example.  One place had practically an entire self-contained living unit in a virtually windowless basement.  And the places were out in the middle of nowhere.

[Bonny]

In my area a 3/2 1050sq.ft. 1957 unremodeled house goes for $800k.

Great for me not so wonderful for folks just starting out unless you're a Silicon Valley Millionaire. And we're a blue collar neighborhood.

We only have one new subdivision going in. 4,000 sq.ft. for $5M. I think the developer will go BK because $2M is still a push here.

[busymom]

My Mom's house is in the city, in an area where there was a building boom following World War II. I'm in the process of getting it ready to sell (any takers?) , but the kitchen & bath do need updating.  I'm guessing if I sold it "as is", it'd go for the low 200's, but builders are buying up these old houses & tearing them down, & putting in new houses with all of the bells & whistles, & selling them for between 800,000 & $1M.  I'm amazed people are actually buying these huge houses on small lots! 

[souldoubt]

Plenty of starter homes in Southern California where I'm.  That doesn't mean there aren't plenty of updated houses and McMansions but for the majority of first time buyers they're getting a 50-60 year old house that needs updating.  We've seen developers buy old houses on maybe 6-7,000 sq foot lots, bull doze the house, split it into 2 lots and build two 3 story monstrosities that have no yard or much space aside from what's in the house.  That said people buying those generally aren't first time buyers.   

[Tiny]

Buying has one huge advantage over renting -- fixed monthly payments. In all but the most unusual situation, that means housing really becomes cheaper as time passes, thanks to inflation. That is not true of renting, and certainly not now. Rents are rising at record rates around the country.

This makes it sound like landlords are 'gouging' their renters - with that pricey rent that goes up every year...

Yes, one's PI doesn't change over the life of the mortgage - but Taxes, Insurance, and Maintenance DO.

Woo hoo! The mortgage on my house is $387.00 - but I have $550 a month for Taxes/insurance... and if my Property tax appeal fails this year my TI expense will jump up to a minimum of $600 a month... so yeah, my PI staid the same... but my overall monthly expense went up by $50...


I have to raise the rent on my properties because MY expenses keep going up...

[emma1420]

Aug 11, 2015 8:35:43 GMT -5 thyme4change said:

Aug 11, 2015 6:56:55 GMT -5 TheHaitian said:

It's gone. Builders and banks just can't make money off humble homebuilding, or at least they think they can't."

.

That is because every 20-something year old thinks that houses are completely unlivable without granite counters, 40 inch stoves, 2 sinks in a master bathroom, high quality hard wood, and (worst of all) 2,500 square feet of living space.  Bring back laminate floors and builder's grade cabinets, and now you actually have a starter home.  

I have met young, broke people that wouldn't be caught dead in my house. 

I don't think it's every 20-something, but it's enough to make sure that the demand for basic no frills houses isn't high enough to warrant building those sorts of houses.   

But, I also don't understand why a starter home should be detached (like the article seems to imply), especially in HCOL areas.  In many other countries in the world, duplexes, townhouses, and condos seem to be far more acceptable as not only a starter home, but a forever home.  I feel for people who live in VHCOL areas, but no one is required to live in those areas.  There are plenty of jobs and opportunities in LCOL areas.  

[GRG a/k/a goldenrulegirl]

I'm wondering who is going to buy all those big McMansions once the Baby Boomers start to downsize?

With the steep drop in population, and, therefore, in demand, I think if younger folks wait it out another 5-10 years, there will be a supply glut -- even around, here, Carl.  

It stinks to have to wait, but, patience IS a virtue.   

[Tiny]

There's plenty of starter homes in my area - hundreds of thousands. And there's even some that don't need a ton of work... maybe they need to have the walls painted, maybe a new ceiling fan or light fixture, and maybe some new carpeting and window treatments.... basically - they need 'decorations'.


I think people's expectations are swayed by TV shows.

I also think sometimes people 'lose touch' with reality... it's kind of the "I'd love to win a million dollar house! I'd live in luxury!" but unfortunately they don't know or consider the expense of owning a million dollar house... even if they were given the house - they wouldn't be able to keep it.

[movingforward]

I am looking to buy next year and yeah, in my area starter homes seem to be going away.  They are building 4 new condo complexes in the area where I live and it is very disappointing to find that the smallest unit is 1835 square feet.  It is above my price range and I don't need or want all that space.  The new houses are the same way.  I was really hoping for something new but it looks like I will have to go with an older home or condo.  I am okay with that but it was just a real let down because I was so excited about all the new condos and homes they are currently building.  My area is full of young single professionals so it seems like 1200 sq foot homes would be in high demand.  I guess not

[bobosensei]

DH and I are 33, but we have never owned a home due to moving around with the army.  I will take a home built in the 20s or 30s over a brand new home with granite and stainless any day!  My only complaint is that so many of the historic homes get updated to look just like the ones that are built quick and cheap.

[Tiny]

And here's why, according to BuilderOnline:

Making a $200,000 home work as a homebuilder is junior-high-level arithmetic. Solving for profit -- say, 20 percent -- land and building direct costs can not exceed $160,000. Problem is, a 20 percent margin on a sub-$200,000 house has become frighteningly elusive in the past decade.

The lowest build cost is around a $50 a foot, says David Goldberg, a homebuilding and building products manufacturers analyst for UBS, New York. "If you do a 2,000-square-foot house, which is what you'd have to do to compete with existing stock, that leaves you with $100,000 of sticks-and-bricks cost. The maximum cost on the land would be $60,000."

The catch to all this is that it's not just one problem. No single culprit is killing the new starter home. A stream of factors -- land, operational risk, labor, material costs, entitlement fees -- converge at a single, all-too-real vanishing point where affordability becomes unaffordability.

Even if land can be secured at a reasonable cost, cash-thirsty localities heap fees upon fees that weigh more and more heavily on final home price tags. Chris Cates, co-owner of Fayetteville, North Carolina-based Caviness & Cates Communities, estimates that regulations that stipulate he has to convert stormwater ponds to permanent ponds and bond items such as street lights, sidewalks, landscaping and retention ponds have doubled his development costs.


Wait. This statement seems to say the exact opposite of "it's too expensive to build a small house!"

2000 square feet is NOT a small house.

At $50 a square foot to build a house - why not build a 1200 square foot house... give it a 'good enough' basement or attic so that the future home buyer could expend (or finish). A 1200 square foot house can sit on a smaller lot as well...

Maybe the lot would be 20K (instead of 60K) and the house would cost 60K to build. That's 80K - so then sell the house for 180 to 200K...

It seems to me the builders aren't seeing the whole picture - that there are people who WOULD by a traditional sized (1500 or less) 'starter house' - they'd probably even settle for a small "lot" to put it on.

[The Captain]

Aug 11, 2015 9:47:28 GMT -5 Tiny said:

Buying has one huge advantage over renting -- fixed monthly payments. In all but the most unusual situation, that means housing really becomes cheaper as time passes, thanks to inflation. That is not true of renting, and certainly not now. Rents are rising at record rates around the country.

This makes it sound like landlords are 'gouging' their renters - with that pricey rent that goes up every year...

Yes, one's PI doesn't change over the life of the mortgage - but Taxes, Insurance, and Maintenance DO.

Woo hoo! The mortgage on my house is $387.00 - but I have $550 a month for Taxes/insurance... and if my Property tax appeal fails this year my TI expense will jump up to a minimum of $600 a month... so yeah, my PI staid the same... but my overall monthly expense went up by $50...


I have to raise the rent on my properties because MY expenses keep going up...

So yea that!  The real estate taxes on both my rentals went up by over 8% last year. I pay more each month for taxes than I do PI and insurance combined as well.

Water rates have gone up as well.  I am now transitioning the water on my last property from landlord expense to tenant expense.

[zibazinski]

Plus a lot of people, old as well as new parents of babies/toddlers don't want the hassle of stairs of a townhouse. They may be affordable because it costs less to build up but it's a pita. I healed from childbirth so much faster on a one level home than a three level. Give me a ranch style any day.

[emma1420]

Aug 11, 2015 10:06:37 GMT -5 Tiny said:

And here's why, according to BuilderOnline:

Making a $200,000 home work as a homebuilder is junior-high-level arithmetic. Solving for profit -- say, 20 percent -- land and building direct costs can not exceed $160,000. Problem is, a 20 percent margin on a sub-$200,000 house has become frighteningly elusive in the past decade.

The lowest build cost is around a $50 a foot, says David Goldberg, a homebuilding and building products manufacturers analyst for UBS, New York. "If you do a 2,000-square-foot house, which is what you'd have to do to compete with existing stock, that leaves you with $100,000 of sticks-and-bricks cost. The maximum cost on the land would be $60,000."

The catch to all this is that it's not just one problem. No single culprit is killing the new starter home. A stream of factors -- land, operational risk, labor, material costs, entitlement fees -- converge at a single, all-too-real vanishing point where affordability becomes unaffordability.

Even if land can be secured at a reasonable cost, cash-thirsty localities heap fees upon fees that weigh more and more heavily on final home price tags. Chris Cates, co-owner of Fayetteville, North Carolina-based Caviness & Cates Communities, estimates that regulations that stipulate he has to convert stormwater ponds to permanent ponds and bond items such as street lights, sidewalks, landscaping and retention ponds have doubled his development costs.


Wait. This statement seems to say the exact opposite of "it's too expensive to build a small house!"

2000 square feet is NOT a small house.

At $50 a square foot to build a house - why not build a 1200 square foot house... give it a 'good enough' basement or attic so that the future home buyer could expend (or finish). A 1200 square foot house can sit on a smaller lot as well...

Maybe the lot would be 20K (instead of 60K) and the house would cost 60K to build. That's 80K - so then sell the house for 180 to 200K...

It seems to me the builders aren't seeing the whole picture - that there are people who WOULD by a traditional sized (1500 or less) 'starter house' - they'd probably even settle for a small "lot" to put it on.

I agree.  My house is 1100 sq ft.  I'm single.  I don't really want much more room than that.  And to me floor plan is much more critical than square footage.  I've been in 2000 sq ft homes that look tiny because of the layout.  I suspect many builders would find that with a good layout that there are just as many buyers for homes in the 1200-1500 sq ft range as there are in the 2000+ sq ft range.

[The Walk of the Penguin Mich]

I don't know where this guy is getting his info from....

I know of at least 3 local developments of family starter homes.  They're rather cookie cutter and sell for around $135K (which is low for this area) but they ARE available.

One of the things that I noticed in KY was that there was a development popping up at the end of my boss' street.  It was being marketed to the aging community, smaller lot sizes, single levels, very few steps into the house with high end finishes and the houses were 1200-1500 sq ft.  They weren't cheap, but this was largely due to the fact that they were touted for having hardwood floors, granite counters, etc. for those that are looking to downsize, but don't want to buy a starter house and rip it out.  I also believe that these were built with larger doorways to be able to handle wheelchairs and walking aids better - which some of the starter homes do not.

[tskeeter]

Aug 11, 2015 6:56:55 GMT -5 TheHaitian said:

I know we have talked about it a few times here and I found this article :

www.dailyfinance.com/2015/08/11/death-of-starter-homes/

"I had a depressing conversation recently with someone who does big housing construction deals for a big bank. There's only two types of deals that work, he said: 1) Building pricey, premium, granite-countertop homes for well-off folks, or 2) Building affordable housing with government subsidies. Roughly speaking: There is construction for the rich or the poor. Nothing in between.

Most important, nothing for that apartment-dwelling couple with a toddler and a baby on the way. That's the lament I hear from all my urban friends around the country. Where can I start my family? Where is my starter home?

It's gone. Builders and banks just can't make money off humble homebuilding, or at least they think they can't."

So has starter homes been replaced by condos or town homes in a sense? I say in a sense because in my neighborhood some townhouses are selling for more or same amount as my house...

I was actually told somethng very similar over 40 years ago.  My boss's wife and I were teasing him about being a slum lord, renting small, very basic homes to people with low incomes.  Since he'd grown up in a family of real estate developers and rental property owners, he explained that there were two price points where owning residential rental property was lucrative.  Near the bottom end of the scale and at the top.  Not in the middle.  He explained that housing with a roof the didn't leak and a furnace that worked was worth a certain amount of money.  Slightly bigger and nicer didn't affect the rent very much, until you got into serious luxury because folks who could afford the fancy stuff had enough money that cost wasn't much of an obstacle any more.  They had all they could eat and all the cars they could drive and still had a lot of money to pay rent on fancy homes.  The same fundamentals apply to purchasing homes.  A basic home costs a certain minimum amout per square foot to build.  Once you get into fancy appliances, high ceilings, stone counters, and other upscale amenities, the cost goes up, but not as much as you'd think.  And builders of upscale homes can often get people to pay inflated prices for those upscale amenities.  (Our developer wanted $12K to put stone counters in our house.  We had the counters installed after we took posession for less than $6K, including removal of the counters the builder put in and installing an additional top on a dry bar that we'd had built.)  It's those fancy upgrades that are really profitable for builders selling upscale homes. (Our neighbors paid $5K to have a couple of cabinets bumped out from the wall about four inches to make the kitchen cabinet installation more interesting.  I estimate the additional labor to bump out the cabinets was less than $100, a 4,900% profit for the builder.)  

[busymom]

I agree that the layout of some of the new houses in my community is poorly thought-out. One house in particular that I visited during an open house had 4 bedrooms upstairs, with a very wide hallway. It looked impressive, until I went into the children's bedrooms, where you'd need a shoehorn to squeeze in just a bed & a dresser. There was NO room to move in those bedrooms. It would've been a much better use of space to have a narrow hallway with bigger bedrooms.

As a soon-to-be empty nester, I hope the next house DH & I purchase has everything we need on the main floor--master bedroom, laundry room, etc. I've known too many parents of friends who have taken a fall trying to climb the stairs!

[cktc]

I think of a starter home as smaller home/smaller lot. Counters, flooring, and appliances are such a small fraction of the price, what $5k in actual cost? Why not build to the trends? 

Th updated homes in my area sell for around the same price as the dated ones, they just move more quickly.