The starter home you choose at 30 may not fit your needs at 45, or 65. As your family grows or your needs change, you may upgrade, buy a second home or downsize for retirement. For today's homebuyer, one size doesn't fit all.So, what type of home is right for you, and when? In this post, we map out what your lifelong journey through homeownership might look like in today's marketplace.
The Starter HomeStarter homes aren't what they used to be. The average buyer is no longer a single-income, mid-twenties newlywed couple. A more accurate picture of the first-time buyer is older — 31 years old on average — and more financially secure — typically multiple income households with an average income of $64,400, according to the National Association of Realtors. While married couples still make up a majority of first-time homebuyers, a good portion — 46 percent — are singles or unmarried couples.
The reasons Americans are jumping into real estate with a first home are likewise evolving. For some, a starter home still represents a rite of passage and buying a piece of the American Dream. Others are thinking more about practical considerations. It's a divide confirmed by recent data.The 18 to 34-year-old millennial demographic represents about a third of the homebuying market. These are the buyers chasing that American dream. A National Association of Realtors study found 68 percent of millennial buyers were first-time homebuyers, and many cited the desire to become homeowners as their primary reason for buying. For older first-time buyers, making the switch from renter to homeowner often had to do with a new job or a growing family.
A recent U.S. News & World Report article points out that buyers are likely to be in a starter home for five or more years, meaning those buyers should choose a home that won't be outgrown too quickly. PulteGroup, a national single-family home builder, told U.S. News & World Report their first-time buyers often want at least three bedrooms and two bathrooms.If you're at the point in your life when it is time to consider a starter home, know that you may not be able to get every feature you want — though you should aim for a home that does meet your most important needs. Home builders aren't building as many entry-level homes these days, and housing stock is tight in some areas, so a first home may come with a higher price tag. According to Zillow, the current median sale price for homes in the U.S. is about $223,000.
By the time first-time buyers are ready to trade up for their next home, family and financial circumstances have often changed. Kids, pets, and in-laws may now be in the picture. The buyer looking to trade up likely has new, emerging priorities that will influence their next buying decision.
As Realtor.com notes, size, practicality, and location are key factors for buyers in this stage of life. They may want an additional bedroom or two, but shouldn't neglect other family-friendly spaces, such as playrooms or dens. Realtor.com points out that a growing family may need practical features, like a larger laundry room, more storage space, and outdoor areas for the kids. Lastly, school districts are likely to be a high priority, if not top priority, for this type of buyer. With such perks, a trade-up home of this nature is going to cost homebuyers a good bit more than their starter. Still, the trade-off is worth it for manyFor some high-income or high-wealth homeowners, a second home may be the next stage in the homeownership journey. These buyers have met the basic needs of their family with a primary residence — now it's time to consider a vacation property for personal recreational use or an investment property that will serve as a longer-term investment.
By necessity, buyers of second homes are usually older and more financially secure than the average consumer. One survey puts the median age of second-home buyers at 42, and homeowners from age 40 to 60 are considered the primary customers in the second-home marketplace. The income for these buyers continues to rise, too — in the case of vacation-home buyers, the median was $94,000 in 2014 – an increase of $9,000 from the previous year. More than half of vacation-home buyers purchase their second home to use as a family retreat, according to a recent National Association of Realtors survey.
More than a third of investment-home buyers in 2014 planned to use their second home for rental income, according to the same survey. The South, with 37 percent of investment sales, was a popular place to buy, although it's likely these buyers were local. Investment home prices had a mean of $125,000 in 2014, and investment-home buyers were found to stick close to their primary residence, in contrast to the 200-mile distance of the median vacation-home buyer.
With price points that are well below the national average, the typical second home is likely to be smaller than a primary residence, and a prime location and turn-key condition are typically second-home buyers’ biggest concerns. Still, buyers typically don't expect to hold onto a second home much longer than a starter home. Survey respondents estimated six years for vacation homes and five for investment properties.
At some point, keeping up with a larger home — or perhaps multiple properties — may lose its appeal. When that time comes, some homeowners may consider buying a home better suited for their retirement needs. Some buyers may downsize in their 50s, after the kids leave home, while others may wait until retirement. Still, others are part of a growing trend to upsize in their retirement years.
Buying a home at this stage of life comes with a unique set of challenges, as well as some exciting possibilities. Unlike a starter home, second home, or even trade-up home, a home you purchase in retirement will likely last much longer than five to 10 years. It may also be your final home purchase, meaning it's important to plan ahead.
Mobility may eventually be an issue for aging homeowners, making single-level homes with doorways and halls wide enough to accommodate a walker or wheelchair a high priority for retirees, according to U.S. News & World Report. And while some retirees and empty-nesters will want to downsize considerably, it's important to consider lifestyle.
Homebuyers who entertain frequently may want a home with space for parties or guests. Buyers may need an extra bedroom for visiting grandchildren, a boomerang kid, or their own aging parent. Indeed, multigenerational households have been on the rise. Nearly a quarter of millennials as well as a quarter of those over 85 live in multigenerational households, according to research by the Pew Research Center.
Location is also a key decision for a retirement home purchase. A recent Bankrate survey found three out of five respondents want to move to a new city or state in their retirement. The primary concern isn't always moving to closer to the children or grandkids, either. Some want a nicer home, while others expect to have more family living under their roof. Moving to a less expensive area can open up such possibilities without breaking the bank. AARP's recent list of top retirement destinations boasts housing markets across the country where prices hover just above $100,000 — well below the national home price average.
Whether you're shopping for your first home or your fifth, each will be a new experience. Our housing needs are continuously evolving, just like our lives. While this may mean there's always something new to consider when it's time to purchase a new home, it certainly does keep things exciting. Much like life itself, homeownership is about the journey – not the destination.