When my husband and I bought our house in Basking Ridge, we were newly married with a baby on the way. We were not millennials – he was born at the very end of the baby boomer phase and I am seven years younger than that. But, our Realtor at the time (who, by the way, taught me everything I know about being a Realtor!), told us that it wasn’t often that she had buyers who bought the big house first. I guess we were ahead of our time!
It seems that a new trend has begun to emerge. With home prices skyrocketing in the starter home category, many first-time home buyers are skipping the traditional starter homes and moving right into their dream homes.
What is 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 Great Recession and seemingly unsurmoutable student loan debt forced many to either remain living in their parent’s homes or to rent.
As the economy continues to improve, many millennials have been able to break into better-paying jobs which has helped them with down payment savings. As the dream of home ownership comes closer to reality, many millennials have begun to save 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.
We are seeing this in Basking Ridge as well – inventory levels here in town are hovering right around three months. It takes levels between four and five months to consider a market to be balanced.
It didn’t take too long for ,any first-time buyers who were originally looking for starter homes to realize that for just a little bit more money, they could afford trade-up or premium homes instead.
If you plan on purchasing your first home this year, let’s get together with one of my favorite mortgage reps to determine how much house you can afford. You may be pleasantly surprised.