10/22/2021
Trends aren't looking good for new construction of starter homes!
There isn’t just one culprit to blame for the disappearance of starter homes across the nation. But generally, there are way more would-be buyers now splashing around in an increasingly shallow competitive pool. And plenty of them are not first-time buyers at all.
The pandemic sent many urban renters into the suburbs to compete for these entry-level homes. Baby boomers hoping to downsize are also going after smaller properties, competing with 20- or 30-somethings hoping to purchase their first homes.
Investors, many of whom can offer all cash, also are vying for the same homes, but with a big financial advantage.They range from mom and pop operations to big Wall Street firms turning homes into rentals. Others are flipping properties for a quick payout.
Even regular homeowners are getting in on the action by turning their homes into rentals—either long-term, traditional leases or short-term vacation rentals like on Airbnb.
“Many existing homeowners refinanced their mortgages to record-low interest rates, which has brought down the monthly mortgage cost,” economist Wolf says. “Some of those homeowners found themselves in a place where they could turn their starter home into a rental unit and buy a move-up home as well.”
That’s pricing out many prospective buyers and also causing people who could have typically afforded a larger home to size down.
Meanwhile, builders are tearing down smaller homes and replacing them with large ones on the same plots of land to accommodate changing tastes—and, of course, to maximize profits.
