Skipping the Starter Home
There’s some anecdotal evidence that first-time Buyers in the Twin Cities are making their mark a rung (or three) higher than you’d normally expect to find them.
Namely, they’re disproportionately active in transactions around $500k — especially new construction in some of the more affordable ‘burbs — rather than in the low-to-high $200k’s, their usual stomping grounds.
What’s going on?
Four Theories
My four-part explanation:
One. First-time Buyers have been holed up in rentals much longer than previously — as long as 10 years in some cases.
During that tenure, they’ve gotten promotions, raises and bonuses, increasing their purchasing power.
Two. They’re buying as couples and even young families, rather than as singles.
While twenty-something’s often buy their first home solo, thirty-something’s are more likely to already be coupled-up — sometimes with a kid (or two!).
So, before they may have bought a $200k townhome with 1,200 square feet, lots of stairs, and little (or no) yard, not to mention monthly association fees averaging $200 – $300.
Now?
They’re skipping straight to the new(er) +3,000 square foot home with four Bedrooms, three Bath’s, a mud room and first-floor Laundry — plus, a more open floor plan.
Three. Constrained supply.
Want a nice-sized family home in Linden Hills?
Good luck!
For $500k, at most you’ll get a 1.5 story with 3 Bedrooms, and maybe a private Bath in the Owner’s Suite (parents of small kids love sharing a Bathroom).
And that house might still need significant updating.
Which is why frustrated Buyers in the market for an affordable, bigger home in move-in condition have been looking farther afield.
Four. Obliging interest rates (still).
While they just spiked, interest rates on bellwether 30-year fixed mortgages are still well below 4%. That makes payments on a $500k house competitive with renting the same size/type of home.
Assuming you can find one, in the same neighborhood . . .
P.S.: A strong Twin Cities economy with unemployment below 4% has been another tailwind.
See also, “Stamping vs. Stomping Grounds.”
