Can Millennial First-Time Buyers Skip the Starter Home?

June 3, 2024 | Buying a Home | By: The Goodhart Group

Millennials are redefining traditional life milestones. Some are getting married and starting families later, and some are also trying to skip the “starter home” and go straight for the “forever home.” As a result, they are reconsidering the concept of a starter home. 

With changing priorities and financial circumstances, the idea of bypassing the starter home and entering the market at a higher level is becoming increasingly relevant for this generation. However, this shift in the preferences of first-time buyers may not be totally realistic in today’s very competitive market. Is this millennial trend here to stay? Read on!

Life Milestones and Real Estate

The average age of women getting married is 28 years old; for men, it is 30 years old. The average age of women having their first child is 30, much later than earlier generations. This delay is attributed to factors such as pursuing higher education, focusing on career advancement, and prioritizing experiences over material possessions. As a result, when it comes to purchasing a home, millennials may start their home hunt later and have different priorities and financial capabilities compared to previous generations. 

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Rethinking the Starter Home

The traditional notion of a starter home is purchasing a modest, entry-level property with the intention of eventually moving to a larger, more permanent residence. Instead of following the traditional trajectory of starting small and gradually moving up the property ladder, some millennials are holding out by renting or living with family while they save and aim for a forever home from the outset.

Potential Considerations of Bypassing the Starter Home

Skipping the starter home and aiming directly for a forever home can present several challenges and trade-offs that may make it less realistic for millennial first-time buyers. Here are a few reasons why skipping the starter home may not be realistic for some individuals:

  1. Financial Constraints: First-time buyers may face financial constraints that make purchasing a forever home challenging. It requires careful financial planning and a realistic assessment of one’s budget and long-term goals. Saving for a larger down payment and affording the ongoing costs of a forever home, such as property taxes, maintenance, and utilities, can be more demanding without the equity gained from owning a starter home. In recent years, home values have continued to rise year after year, making it harder and harder for first-time buyers to afford what they’re looking for the longer they wait, even if they accumulate more cash as they save.

Click here to read why maybe “Your First Home is NOT Your Dream Home

  1. Limited Housing Options: By bypassing the starter home, buyers may limit their housing options, especially in competitive real estate markets. The ability to enter the market at a higher level and find the perfect forever home within their budget and preferred location can be a daunting task, potentially leading to a prolonged search and missed opportunities. The inventory shortage of the last few years means there are fewer properties to choose from, increasing demand. These competitive situations mean you often need to have a high downpayment and earnest money deposit, and even possibly waive appraisal and financing contingencies in order to complete.
  2. Delayed Equity Building: Purchasing a starter home allows buyers to start building equity, which can be leveraged for future home purchases or other financial needs. Essentially, when you buy a home you have a forced savings account where you are paying down your equity as, typically, the value of your house will rise year over year. By waiting to purchase a forever home, individuals may miss out on the opportunity to build equity and benefit from potential appreciation in property value which can help them move up to a larger or forever home faster.  Check out our article here about why you’re losing equity by renting!
  3. Lifestyle Compromises: Waiting for the perfect forever home may result in compromises in lifestyle and living arrangements. Some individuals may need to continue living with family or in less-than-ideal rental situations while saving for a forever home, potentially impacting their quality of life and independence.
  4. Market Dynamics: Real estate markets are dynamic and constantly evolving. Waiting for the perfect forever home may mean missing out on favorable market conditions, such as low interest rates, favorable pricing, or desirable inventory, which could benefit buyers in the long run. 

The Bottom Line

While the idea of skipping the starter home and going straight to a forever home may be appealing, it’s essential for millennial first-time buyers to evaluate their lifestyle and housing needs for the long term, and to carefully consider the potential drawbacks and challenges. Working with a knowledgeable real estate agent and lender can provide valuable guidance in navigating the complexities of the real estate market and making informed decisions that align with their long-term goals and financial well-being.


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