By David Fleet
Brandon Twp. — Walt Dilbert’s first home was 1,200 square feet on a corner lot in Warren.
“I was making pretty good money in 1963 as a draftsman for Pratt & Whitney and the Big Three,” said Dilbert. “My wife and I were renting then we purchased the home for $17,265. Most of the homes in the area were about 1,000 square feet.”
Dilbert lived in the Warren home until 1979 and moved a few blocks away to a 2,200 square feet home.
Today, Dilbert, now 81 years-old owns a 2,700 square feet home on several acres in Groveland Township.
Dilbert’s transition from a starter home to a larger forever home was once an all-to-common move from just out of school to the workforce then to home ownership.
Those days may be a thing of the past.
Jason Gault, associate broker, Real Estate One-Ortonville, suggested a few key factors that are now making starter homes history.
“Overall market inventory has been declining for the past 15 years,” said Gault. “Sale inventory was up in 2010, but home starts were below average demand from 2006 to 2021.”
Also, increased market pressure from investors is a factor, he said.
“Starter homes are becoming rental properties at an increasing rate, including large corporate buyers and institutional investors,” he said.
Two of every 10 homes sold last year became a rental, so they are essentially disappearing from the ‘for sale’ market, he said.
The Home Builders Association of Southeastern Michigan representing Macomb, Oakland, St. Clair and Wayne counties, in June 2022, reported multi-family, for rent, construction continued to surge in response to higher home prices, adding another 228 permits in June. The year-to-date total for 2022 of 1,557 is at its highest level to start a year since 1998 which were 2,575, according to the HBASM.
In comparison, a total of 319 single-family home permits were issued, nearly 12 percent lower than May 2022s revised total of 360 permits, June’s total was 35 percent lower than the total for June 2021 (488).
In The Citizen distribution/readership area the number of available homes peaked in July 2010 at 284 homes for sale of which 17 were 1,000 square feet or less. Currently, 76 homes are for sale with three of those 1,000 square feet of less.
The millennial generation, between 25 and 40 years old and representing 72.1 million in the U.S., currently represents the largest population in the housing market, many of whom are competing for their first home, said Gault.
“The second most active generation, the Baby Boomers, are looking to downsize in many cases,” he said. “Also, the lower price point makes them attractive to investors.”
Gault said some home buyers do not have to sell their ‘first’ home due to the increase in equity, so they are moving up and turning their prior home into a rental, becoming an investor by circumstance.
“Intentional investors looking for a rental property to buy are typically looking for homes in this market segment because they are the most sought after in general, regardless of market conditions,” he said.
There has also been a recent surge in purchases of single family rentals by large wall-street firms, such as Goldman – Sachs, JP Morgan, Cerberus Capital Management and Blackstone. Since 2019 single family rentals have been the best performing property class, gaining about 40 percent in 2021.
Homes are also growing. In the 1950s the average new home was 948 square feet, today the average size of a new home in the fourth quarter of 2021 was 2,561 square feet, according to the National Association of Home Builders.
Jim Hill, owner of Hill Building and Properties, 457 Mill St., Ortonville has constructed homes in the area for more than 30 years.
“In this area we almost never built smaller homes,” said Hill. “The local townships require a minimum lot size often 2.5 acres (to build on) which can cost more than $50,000 just for the property. We work on a percentage, so the higher the value of the homes we build, the better return for the builder. More return for over the 12-14 months to complete.”
In addition, many areas have square foot minimum sizes for single family homes, especially in a subdivision where some can top 2,500 square feet, said Hill.
Still, the cost of even a small new home would start at about $230,000-275,000, considering the cost needed for infrastructure such as septic, drains or a well the cost easily tops $300,000. In addition, current inflation and supply chain issues have created major fluctuations in the cost of building materials, said Hill.
For example, about six months ago the cost of a 4-by-8 sheet of OSB used for walls, floors and roofs in the construction was $45 each. Today that same sheet is $17, he said.
“At that cost home buyers are now opting for larger existing homes and remodel,” he said. “The first time buyers are often battling student loan debt and are a few years out of college. Two incomes are many times a must when considering a home in this area building a home.“
Hill recommends a professional home inspector prior to purchase.
“Home buyers are making possibly the largest purchase of their life,” said Hill. “Do your due diligence.”
By David Fleet