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2012 was near the bottom of falling housing prices following the "great recession", where bankruptcy and foreclosure led to plummeting house prices in many areas of the US. It is not surprising that thereafter, prices would be increasing, especially in the lower price points in the market. It needs to supply some benchmarks for its comments.
However, there is justifiably a problem today since starter homes are not being built. Add to that the fact that most first time buyers have greater expectations than ever of what they require. In the 60's kids had twin beds and shared rooms. Today every kid "needs" a double bed and his own room, sometimes own bathroom. More square footage, please. Hard to know what to do.
There's tons of issues in the housing market, but it'll sail on for a while until the next recession or similar hits... or reality. Take Maryland for an example: Median household income = about $70,000, median housing price = about $300,000. That's not sustainable.
We keep hearing joy about "the economic recovery" but that's honestly not been that impressive. People have jobs again... they don't have pensions, great jobs, etc. - just jobs. Cap that off with run-away price increases in healthcare and education (on top of housing prices), and still dismal job security, and it's mind-boggling how people keep spending way beyond what they should on housing.
I get it - choices are limited and there are vest interests in keeping housing prices high, churn up, and so forth, but it's still not a good situation.
If you look at the kind of homes built in the post-war baby boom, you will notice that they. Were. Tiny! There was a development near St. Louis that built and sold two and three bedrooms and one bath houses to Catholic families. Someone I know grew in one of them in a family of seven and said that they would knock out closets and have bunkbeds. When they saved enough money, they finished their basement, and some people sometimes even converted the garage into living space.
A four bedroom three bath house is not a starter home. You also don’t need a brand new house for your first home. The problem is that new houses are often 2000-3000 square feet; developers aren’t building attainable, affordable houses. What will the housing market be like in 20, 30, 40 years? There won’t be any reasonably priced houses in decent shape.
With land costs the way they are in desirable areas, it makes more sense, from a financial perspective, for a builder to build the most expensive house they can on the land. If they can build and sell a $500,000 house and make a profit of $50,000 instead of a $250,000 house and make a profit of $20,000 -- why wouldn't they build the $500,000? Land costs drive most of these building decisions.
Everyone's idea of a starter home is different however!
We built our starter home. It was in the Chicagoland suburbs, 2,000 sq ft for $268k. Now to most, that probably wouldn't be considered a starter home, but to us it was. We moved 3 years later and built a 3,400 sq ft home for almost double the first homes price.
So IMHO a starter home doesn't necessarily need to be cheap and small, it's what one can afford at the time for their first home with the outlook that one will not live in it forever.
I think another good point to make is were living in an age where everyone wants instant gratification. Everyone wants their dream home not a starter home so starter homes aren't the 150K house that isn't your dream home, isn't in your ideal location, etc, everyone wants their starter home to be perfect. I bought my first place at 24, it wasn't in the best area, it wasn't a SFH, it wasn't my dream house but it was what I could easily afford at the time. I moved in with a few buddies, lived there for a few years, got my mortgage paid while saving money and building equity and 6 or 7 years down the road I bought another house which isn't my dream home but is a step up
Starter homes are not being built because some towns and cities won't allow a house under a certain size. Also it costs a lot of money to build a home. If you have to put in a kitchen and a bathroom or two it doesn't cost a lot more to build and extra bedroom or make a living room larger. They then can increase the price and their profits.
I don't think that's really a reason. Most cities don't allow homes under say 600 square feet maybe 800 but most starter homes IMHO are going to be 1000 to 1400 so I wouldn't think that's an issue
With land costs the way they are in desirable areas, it makes more sense, from a financial perspective, for a builder to build the most expensive house they can on the land. If they can build and sell a $500,000 house and make a profit of $50,000 instead of a $250,000 house and make a profit of $20,000 -- why wouldn't they build the $500,000? Land costs drive most of these building decisions.
Yeah a lot of people don’t seem to get this . The land costs the same whether luxury or non luxury . The labor is the same . The finishes might be slightly more but anything new in a city like L.A is viewed as luxury because new buildings are so scarce .
The only way affordable housing can be built is if it’s subsidized and there will never be enough of it to meet the demand of people that want to live in a high cost city for an “affordable price “
Also some of these affordable housing projects require 6 figure salaries just to rent there .
Nothing personal, but people who are doing what you are doing are part of the problem.
There are no starter homes, and rents are sky-high due to the lack of affordable homes.
So running a legal business is a problem? I wasn't aware we were living in communist Russia or China with controls on housing.
If someone has done well enough to be able to put some money on the line and buy rental properties and take on the risk as there is risk, more power to them.
I regularly hear people talk about a shortage of rentals, if that's the case this guy is actually providing a service people need.
There is affordable housing, it may not be in the ideal location for you but that's called supply and demand. I would love to live in Wicker Park or West Town in Chicago, I'm priced out, its not the end of the world I move to a different neighborhood or the suburbs. There is affordable housing it may not be in your ideal location
I think another good point to make is were living in an age where everyone wants instant gratification. Everyone wants their dream home not a starter home so starter homes aren't the 150K house that isn't your dream home, isn't in your ideal location, etc, everyone wants their starter home to be perfect. I bought my first place at 24, it wasn't in the best area, it wasn't a SFH, it wasn't my dream house but it was what I could easily afford at the time. I moved in with a few buddies, lived there for a few years, got my mortgage paid while saving money and building equity and 6 or 7 years down the road I bought another house which isn't my dream home but is a step up
Yeah that is a smart way to go about it . I know a lot of people call that “house hacking “ now . I bought a house in my late 20s that was a fixer foreclosure during the housing crash and lived alone except for about a year or so after I got married ... but enjoyed my privacy so I don’t really regret not renting out rooms .I think having roommates in college kind of ruined my outlook on roommates .
So running a legal business is a problem? I wasn't aware we were living in communist Russia or China with controls on housing.
If someone has done well enough to be able to put some money on the line and buy rental properties and take on the risk as there is risk, more power to them.
I regularly hear people talk about a shortage of rentals, if that's the case this guy is actually providing a service people need.
There is affordable housing, it may not be in the ideal location for you but that's called supply and demand. I would love to live in Wicker Park or West Town in Chicago, I'm priced out, its not the end of the world I move to a different neighborhood or the suburbs. There is affordable housing it may not be in your ideal location
Yeah there seems to be quite a few people that have a lot of negativity towards landlords . In L.A recently there have been protests against landlords raising rent and they even have gone to landlords personal homes and harassed them there .
Like you said most landlords just want to provide a decent place to live . They also aren’t making a fortune especially in big cities were returns are like 3% now . Many also have the misconception all small business owners are swimming in profits , when most are just struggling to get by and feed their families .
There is one basic reason that they are not building starter homes most places.
In most cities, the cost of the lot, lot preparation costs, permits and fees, and getting utilities to the lot, have priced the property before building to the point, that it is not financially doable to build a starter home on the lot and make any profit.
Due to that one fact, the builders are building homes on those lots, that allow them to make a profit. Those homes will not be starter homes.
We bought our first home in Cupertino, California in 1956 for only $13,750 with 3 bedrooms, 1.5 baths, nothing down VA loan. A home nearby that was built in 1950 with only 2 bedrooms was not as nice and cheaper back then costing about $10,000 new. Here we are over 70 years later and it is now on sale for $1,895,999, with a pending sale.
This is an extreme example. There is no way that a builder can build a starter home on that lot, because the home would have to sell for far above what a buyer for a starter home can afford to pay.
Here in our small rural town, lots do not sell for $1,488,000. The cheaper ones in a newer area, are going to go for a minimum of $70,000 and the good lots I would consider building on, will cost over $100,000 by the time the construction could start if you can even find a lot.
Lot prices and preparation costs in any desirable area in any city are worse. It is to the point in most areas of the country, it is impossible to build a starter home that the people wanting starter homes can afford to buy.
We live on 5 acres across the street from the best part of the city. I can get it taken into the city. I have it planned to turn 4 acres, into about 9 lots, in a couple of years, and will net about $600,000 when I sell the lots. I know what I am doing, as I spent from 1972 until I retired as an investment real estate broker. I have developed lots before, had homes built, and am very well experienced to develop those 8 lots. The home is a 3,700 sq. ft luxury home and I could sell it today for about $500,000. If it was in Cupertino in a similar quality location, $3,500,00 value.
By developing those 8 lots in about 2 years, we can sell out for about $1,100,000 or more for our free and clear house and lots. No builder will be able to afford to build starter homes on those lots. My wife and I are both in our 80s, and we have enough cash to live on the rest of our lives considering our age. We are both in good health, and with our family history, our doctors tell us we should last about another 10 years.
The sale of the home and lots, can all go to our 3 remaining sons when we are gone.
I have the knowledge and experience to do it, can afford to do it, and the land to do it, and feel that it would be selfish on my part, not to put together another $200,000 each for our sons, with no more work than it would take.
I used my own case as an example of how lots get developed in small towns, and even in small towns the lot prices rule out building starter homes. In cities you develop larger pieces of land, and the costs are higher than what I will have. Price of developed lots in decent areas, just price out building starter homes in cities even more so than in our small town.
I mean, there are areas in the country where you can find a home, a decent home, for dirt cheap. The problem is, these areas are usually totally undesirable, boring, and jobs are low-paying and/or scarce. You get into the areas that have nice weather, are interesting and have decent jobs......even the
starter-shacks will have bidding-wars on them.
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