If You Build It, They Will Buy: New Construction Starter Homes May Be Answer for Millennials

A group picture with a young woman with curls standing in front of the group, with a document in hand.

Millennials are primed to purchase homes in the next two years — and some homebuilders are creating a product that caters directly to Millennial first-time homebuyers.

For a lot of young people who are starting out, renting an apartment has been the norm and has made sense financially.

However, with rising rent costs all over the country, the tide is turning for Millennials who would rather put that money toward a home payment and build some equity.

“The rent for an apartment comes out to be the same as paying on a mortgage,” says AJ Saleem, who recently closed on a newly built home near Sugar Land, Texas, just outside of Houston, with his fiancé Sofia.

Saleem says a new home gave him and Sofia the design and architecture they desired.

“New homes definitely have a contemporary and modern look and feel to them. Some of them are already pre-wired for home automation. My app on my iPad can control every part of the house,” Saleem says.

Many Millennials — young people from the ages of 18-34 — are facing a failure to launch; that is they are having a difficult time starting out their lives and achieving the American dream. Despite being the largest labor force, according to a new study by the Pew Research Center that was done in the last quarter of 2015, good jobs with good salaries are still hard to come by for the majority of young people.

When you mix these two things with crippling student loan debt and a rise in cost of living, you get a generation that is downsizing in all areas of their lives, most important when it comes to buying their first home.

Despite many news headlines that purport that most young people are moving back into their childhood homes and are afraid to commit to decades-long mortgages, the opposite is true. A recent survey by TD Bank found that two-thirds of Millennials say they think they will purchase a home in the next two years. Being able to afford a home is still something that’s keeping many Millennials from purchasing, along with bidding competition.

But, the dream of homeownership is now possible due in large part to newly constructed starter homes that come with affordable price tags.

According to a recent article by Prashant Gopal for Bloomberg Business, newly constructed starter homes are coming back in a big way and major builders like D.R. Horton, Tri Pointe Homes and Meritage Homes are building communities designed for Millennial first-time buyers. This is a smart move because Millennials now account for 36 percent of U.S. home purchases, according to data collected by the National Association of Home Builders.

Young people have never given up on the idea of homeownership.

D.R. Horton, the largest homebuilder in the country, has been at the forefront in the industry of providing new construction starter homes to entry-level buyers. When the company first announced it was going after this demographic by offering their line of “Express” homes, many were skeptical and saw it as a risk. That risk has paid off and brought in a 26-percent increase in net sales in 2015 since they began building the homes last year. D.R. Horton plans to build more of its Express homes in 2016 and other leading builders have followed suit; TriPointe in particular plans to expand its first-time buyer properties this year.

Many of these homes start in the low $200,000s and are smaller, without a lot of extra features that more expensive homes come with. “We bought new construction because we were able to get the loan and would not have to worry about repairs for a while,” says Saffiyah Cummings, a first-time buyer from Southern Minnesota. “At a time when (my husband and I) are still building our life, we don’t have the cash flow to allow for cash payments for upgrades.”

Cummings also says that the fact that their new home came with warranties and guarantees that would keep surprise costs to a minimum was a huge draw.

Janine Acquafredda, associate broker for House n Key, Realty in New York, reiterated Cummings reasoning for buying new. “At the end of the day, it comes down to money. There’s no leftover money to do repairs or to update, so when (buyers purchase) new, all they have to worry about is packing and moving.”

Acquafredda adds that a lot of new-construction homes have a modern feel and the latest technology, which makes them appealing to Millennial buyers.

While the myth that Millennials are turning away from the dream of homeownership pervades daily headlines, it’s important to note that young people have never given up on the idea of homeownership and are waiting for the ideal solutions to help them realize their American dream.

Now that Millennials have become the largest labor force and the economy is somewhat steady, builders will likely continue this trend of catering to this demographic and more Millennials will join the ranks of homeowners.

Yasin Mohamud is a communications professional and freelance writer based in Minneapolis.

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