If you’re out there shopping for your first home, you might swoon over that four-bedroom Colonial and imagine growing old there—but wait a minute! Sure, you might be jonesing to put down permanent roots, but your bank account and life circumstances might beg to differ.
Nonetheless, a trend has emerged, particularly among younger millennial buyers: More and more are forgoing the traditional starter home, typically defined as one or two bedrooms, which most home buyers stay in for about five years before trading up. Instead, they are going right for that dream home, which is usually larger and boasts fancier finishes, an appealing location, and other amenities—with the commensurate higher price tag.
In fact, according to Census Bureau data analyzed by Ralph McLaughlin, chief economist of Veritas Urbis Economics, from 2012 to 2016, nearly a third of buyers aged 33 to 37 bought four-bedroom homes (aka forever homes) compared with about 24% in that age group who bought similar homes in 1980, 1990, and 2000.
But is bypassing starter homes and falling straight into the roomy environs of forever homes a good idea? Consider these questions that can help you determine which type of purchase might make more sense for you.
Can you afford a forever home?
Reality check: The picture of the poor, underemployed millennial is not entirely accurate.
“Many have been in co-living situations for years, whether that’s the childhood basement or living with friends, and they’ve been socking their money away,” says Laura Brodniak of Windermere Real Estate in Kirkland, WA.
In addition, many in this age group have larger down payments since they have waited longer to buy than previous generations, or in many cases their parents are helping them with funds for the down payment.
However, remember that buying at the edge of your budget can cause you to be “house poor,” not only because your monthly payment is so large but also because a larger house can require more upkeep—not to mention more furniture.
It’s important to take an honest look at your maximum buying power and see how stretching yourself could negatively affect other aspects of your lifestyle, from enjoying weekly brunch to an annual getaway.
Is your life adequately settled for a forever home?
If you’re still in your first job and haven’t yet made plans for kids, you might want to consider that you’re still in the “starter” phase of your life, and therefore more suited to a starter home.
While of course no one can predict the future (even if you seem settled), by their very nature your younger years often have more volatile changes, and buying a starter home gives you some wiggle room for those unexpected curveballs.
Take it from Julie Gurner, a real estate analyst at FitSmallBusiness.com, who has already owned three homes due to changing life circumstances.
“I’d advise anyone who would consider moving for an exciting career development to only commit to a starter home,” she says. Not only is it easier to sell, but you’re less likely to become attached to the property, she notes, which could be a mental roadblock to taking an opportunity you might otherwise pursue.
Do you even know what you want in a home?
Someone who has never lived in a house of their own might have unrealistic expectations of what they do and don’t want, cautions Alison Bernstein of the Suburban Jungle Realty Group, in New York.
“You may realize that you definitely need that two-car garage because you are tired of scraping snow and ice off your car before work every morning,” the residential real estate expert explains. “Or you may not know yet that you don’t really need a basement after all, because no one likes being down there away from the action.”
Or, even worse, you might realize that homeownership isn’t for you at all, whether it’s the constant yardwork that’s killing you or the fact that every spare dime goes to property tax. Consider your starter home your opportunity to try out different home amenities and layouts so you get it right when it’s finally time to get that dream home.
Is there a compromise that could be the best of both worlds?
For most of us, life does change, and very few people stay in their home for 30-plus years anymore. However, you might want to remain in the same town.
“Once you pick a town, you become vested in the community, the neighbors, and the schools, and your children become settled,” Bernstein points out. “It is a very high bar to move out of the town and much more practical, if need be, to find a new home there that better suits your lifestyle as you and your family grow.”
That’s why Shawn Kunkler of Paragon Real Estate Group in San Francisco recommends finding a starter home in your forever town.
“Then, when your needs change, you can buy up,” he says. In fact, Kunkler finds that for some clients, this strategy can cycle a couple of times as their lives continue to evolve before they find themselves in their forever home.
“I remind first-time buyers that their taste and needs are likely to change, as will their income and family size,” Kunkler says. “What is important today in a home may not be in the decades to come.”
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