Are People Still Buying Starter Homes?
Can young homebuyers still enter the market by purchasing smaller, more affordable homes?
While the details of starter homes themselves may be changing, young people are certainly still looking to get out of the renting game and enter the world of homeownership. What is a starter home? Simply a home that may not have the size, location, or details someone would like to see when they’re finding a forever home, but that is a more affordable option to begin with.
In many areas, experts worry that inventory issues and average millennial budgets are keeping the younger generation out of the housing market. However, in North Carolina, starter homes are still going strong. We worked with real estate professionals at Onwire Realty to better understand the current state of starter homes.
Are Starter Homes Still a Smart Option?
“Absolutely,” says the Onwire team, Debbie Rebosa, Fawn Wang, and Claire Connelly. They add on, “for those early in their careers, starter homes are often a better investment than renting. They can build equity in a home and leverage that equity down the line for when they are ready to build or purchase their forever homes.” They might see a small and fine home as a future life investment on the path to their dream home, and they can enjoy the advantages of being a first time buyer.
Of course, the tough question for those who are looking for a starter home seems to be, where have all the houses gone? Despite the fact that inventory is tough to come by and even tougher to win a bid for, the long-term financial benefits of owning a starter home are still strong enough to pull many people toward that choice, and buyer needs are still going strong. Starting with a small starter home with the intention of utilizing that first home’s equity to buy a larger or more customized home in the coming years is a popular strategy.
A Problem of Inventory
Teresa Coker, Director of Marketing and Sales at Onwire Realty, provides more context surrounding the demand for starter homes and the difficulty involved in landing them. “Starter homes are highly sought out in the Raleigh-Durham area,” she says. “However, based on the competitiveness of today’s market, these price points typically have the most competition from first time homebuyers, investors, and those looking to escape rising rental prices.” This competition often drives prices way up, into the ranges that some might have planned to spend only once they found their “forever home.”
Still, there are many striving to find a great home to begin building equity and stop paying rent who can’t yet make the full commitment of buying their forever home. “Millennials make up the fastest-growing segment of buyers today, according to a recent National Association of Realtors report,” explains Coker. “The problem for these first time home buyers here in North Carolina is that to win most offers, these buyers must have access to funds to support a competitive due diligence deposit, earnest money deposit, down payment, closing costs, and have enough funds on hand to cover an appraisal gap if necessary.” This requirement for up-front cash pushes many people who would traditionally join in on the starter home market out of the running. The bidding wars simply become too costly.
In addition to the influx of demand from millennials and other first-time homebuyers, the North Carolina market has seen increased tension due to investors. “Raleigh has gained the attention of many investors,” says Coker. “These investors are purchasing what would be considered starter homes for most to capitalize on the rising trend of single-family rentals.” In a period of existing inventory crisis, investors add more competition for those looking for smaller homes at a lower price point.
While the demand is very much still there, the reality of buying a starter home is not always possible. Increasingly, buyers are making compromises for larger homes or homes in areas that may not have been their first preference.
Others are finding that the cost of building their own home would be lower than the cost of winning a bid for a starter home. With Atmos’ wide range of options and a streamlined process, building a custom home has never been easier.
Ready to jump in on homeownership with a custom starter home tailored to your needs and budget? Get started today!
