Shift Away from “Starter Homes” Expensive for Buyers
For generations of first-time home buyers, real estate logic was simple: buy an affordable home as soon as possible, fix it up, build equity, and then eventually trade up for a nicer home. But Chicago home buyers are no longer following this script. According to Ryan Gable, CEO and founder of StartingPoint Realty, the paradigm shift is significant, and it has lasting implications for the housing market.
“Between 2009 and 2011, about 18 percent of our first time buyers purchased homes that needed significant work,” says Gable. “In recent years, we’ve seen buyers passing over homes that needed any amount of repair. As of 2019, only 7 percent of our buyers selected homes that needed work.”
Putting it another way, buyer preferences have flipped towards new or like-new homes. Gable reports that 23 percent of StartingPoint’s buyers have chosen new or completely rehabbed homes this year, up from 8 percent about 10 years ago.
Buyer preference for newer, nicer homes is often attributed to the influence of HGTV, a popular cable channel featuring home improvement programming. Gable sees a more practical reason behind the trend.
“Buyers don’t want stepping-stone homes because they have more money and less time than they did just ten years ago. Employment is strong right now, so they’re feeling good about their incomes – but they’re not willing to spend their free time fixing up a house. They also don’t want the hassle of living in a house that is undergoing repair.”
This results in buyers paying higher prices for their first homes, which are more elaborate than the starter abodes of the past. Gable is concerned about how the situation could evolve.
“The preference for updated homes makes it more expensive for sellers, who do upgrades and then try to recover the cost in the sales price. So, buyers are paying top dollar for their first homes.
Consequently, they’re losing the opportunity to accrue the kind of equity that making their own upgrades can provide. The margin for their own future profit is reduced.”
Gable says buyers shouldn’t dismiss a home that needs some work, especially if it’s structurally sound with a good layout in a prime location.
“There’s an adage about investment that holds true for real estate,” Gable explains. “Namely, you make money when you buy, not when you sell. If you overpay for your first home, it becomes harder to move on from it.”
1515 E. Woodfield Road
Suite 910
Schaumburg, IL 60173
StartingPoint Realty has specialized in serving first-time home buyers in the Chicago area since 2004.
