Are we seeing the death of the starter home?

I want to start this week’s column by asking you all to join me in a moment of silence as we pause to reflect on the death of the starter home.

Granted, that opener may be a tad dark as far as humor, but the challenges facing the housing market — and the starter-home segment in particular — are no laughing matter.

In fact, a recent report from Point2, an international real estate search portal that is a division of Yardi Systems Inc., concludes that a scarcity of inventory and skyrocketing prices have resulted in first-time home buyers having second thoughts when trying to buy a starter home.

In each of those markets, potential property virgins are anywhere from 56% to almost 70% shy of what their incomes need to be in order to buy a home in any of those markets.

That, of course, begs the question of if the prospects are any brighter for folks looking to buy starter homes in secondary markets.

While the prospects in these areas are more promising, note that in the majority of these locations, starter-home buyers are still mostly double-digits lighter in income than they need to make rent.

When I was a kid growing up on Long Island in the early 1950s, my parents bought their first house for just under $8,000 from Levitt & Sons, a builder that populated scores of neighborhoods back then with cookie-cutter starter homes.

For their money, my parents became the proud owners of a three-bedroom, one-bath home with a full basement, unfinished attic and a postage-stamp-sized one-car garage.

Just for grins, I plugged my childhood address into Realtor.com and was floored to see that my house, which the site confirmed was built in 1951, still only had one bath and three bedrooms. What had changed was the value. The site told me that it last sold in 2020 for $420,000.

It’s no surprise that the paucity of affordable, smaller starter homes is one of the big logs fueling the current housing crisis.

Throw in skyrocketing costs of mortgages, land, building materials and labor, and it is easy to see why smaller, affordable homes that would give first-time homeowners a chance to build equity is going up in smoke.

Closer to home, consumers can’t furnish homes they can’t buy. That’s not doing us any favors, either.

Another issue, which makes no sense to me, is that while smaller homes are virtually disappearing from sight, the demographics of our country show that family sizes have continued to get smaller as homes continue to get bigger.

In fact, it wasn’t all that long ago that we were reporting on the mercurial rise of the McMansion. Remember those?

So, how do we get more first-time homebuyers into homes they cannot only afford, but also afford to furnish with new furniture?

Maybe future solutions formulated years ago were just a bit ahead of their time.

Years ago, I moderated a session with industry leaders to discuss how we could stimulate more furniture sales. 

If memory serves me, the discussion included insights from luminaries including Keith Koenig of City Furniture, Clarence Smith of Havertys, and representatives from Citi Financial, Wachovia, Wells Fargo Financial, GE Retail Sales Financial, American General Financial and American Dream Residential.

If every one of some 8.3 million U.S. homebuyers last year purchased $10,000 in new furniture at the time they bought homes, that would mean $83 billion in furniture sales, Koenig said, admitting that is a blue-sky scenario.

Among the ideas discussed back then was a concept of tying furniture sales to home equity lines.

Another idea was to somehow enable homebuilders to partner with specific furniture retailers to offer some sort of package deals.

One of the executives from CitiMortgage, proposed that the lenders approach Fannie Mae and Freddie Mac as a consortium to pitch the idea of linking furniture sales to the mortgage.

While most of the group was excited by many of the ideas, some expressed reservations that getting government agencies to welcome new ideas could be a long and uphill grind.

That was then, and this is now. Who says it might not be the right time to rekindle that conversation?