Tuesday, July 14, 2020

Is the Dream of Owning a Single Family Home Just a Dream for Many Buyers

A little over 30 years ago along Rt 15 in Selinsgrove, PA a modular home builder had two model homes on his lot. They were both ranch style homes, 2 or 3 bedrooms, 1 bath models. One was 28’ x 44’ and the other was 28’ x 48’ if memory serves me. The sign said he would put either home on your lot with excavation, foundation and finish the house for less than $40,000.

He only offered these two models but you could choose your siding color and flooring. He sold a ton of them every year.

Those types of starter homes are basically disappearing. They aren’t being built anymore in most parts of the country. In 1950, the average price was $11,000. For perspective, median income, in real dollars, was about $3,300. The average home was 963 square feet. A majority of homes had two bedrooms and one bathroom.

By 1972, prices had jumped to $30,000 while family income was nearly $10,000. Homes, which typically had three bedrooms and at least a bath and a half, now averaged 1,600 square feet. That kind of house can comfortably shelter a family with 2.3 children.

Today, families are smaller — from 1970 to 2014, family size shrunk by about half a person but the average new home is about 2,300 sq ft. More space, fewer people.

Now homes have central air and finished basements and man caves and spa tubs and yes, granite countertops. But all those things are useless to young families who have no idea where to find the $500,000 they have to pay to live in a place with decent schools that’s within 50 miles of their workplace.

Today if a modular home builder could build a home like the one mentioned above that included the excavation, foundation and finish work for 4 times median income of say $50,000 bringing the completed house in at $200,000, he/she could sell hundreds of them.

Making a $200,000 home work as a homebuilder is junior-high-level arithmetic. Solving for profit — say, 20 percent — land and building direct costs can not exceed $160,000. Problem is, a 20 percent margin on a sub-$200,000 house has become frighteningly elusive in the past decade.

Under $200,000 is now low end and reserved for only the bravest of modular home builders. Do you really think Walmart would be successful if people had the income to support their desired lifestyles? Would the dollar menu at McDonald’s be the best selling products if people had enough money to buy Big Macs?

The under $200,000 detached single family home is about dead. And if low margins aren’t doing enough to discourage its sales, adding in fee after fee from state and local inspectors and building departments, out of site utility hookups and taxes will probably be the hammers that drive the stake into the starter home’s heart.

There are still areas of the country where people can buy a starter modular home, buy the land and put in the utilities for under $200,000 but let’s be honest about it, these are probably areas with fewer jobs and lots of family farms. Commuting from these areas to an area that has high paying jobs would almost take an all day drive.

And to add to the problem even more, who are the ones that need starter homes? It certainly isn’t the Millennials. They really don’t want the work or upkeep of owning their own detached single family home. Apartments, townhouses and even tiny houses near major cities where the good jobs can be found are perfect for them.

Retiring Boomers really don’t want to step back into the under 1,000 sq ft home they grew up in. Gen X and some Millennials are the ones moving into the new home market in a big way and are demanding bigger and better homes.

Soon we will see the least expensive new home breaking $300,000 in most parts of the country and they will not be called starter homes any longer but rather ‘affordable housing’.

Gary Fleisher is a housing veteran, editor/writer of the ModcoachNews blog and Modular Construction Industry Observer and Information Gatherer

Contact modcoach@gmail.com

1 comment:

  1. Gary your spot on as I grew up in a 1 story, 2 bed, 1 bath home just under 900 SF and many of those homes were being financed by the VA given so many veterans were returning from WW II and the Korean Wars and starting families.

    My first home was built by Mr Tommy Arnold at Virginia Homes in Boydton VA and my oldest son lives in that home today because he cant afford other alternatives in this market.

    The average 1200SF 3/2 +/- site or modular home in this east coast area of Virginia is selling everyday for $240K to $270K and selling as fast as they can find lots to build on.

    The biggest issue's here is not being able to find unrestricted infield lots or raw land to build on and the cost of septic systems ranging over 15k per site. Therefor in order to sell a home for 200K the home completed would need to be under 115K.

    Now there is an abundance of raw land yet none of it is on the market as a FSBO or MLS. In addition, zoning is an issue in this area as much of the raw land resides in Rural Zoned areas requiring 5 ac minimums. The RMA and RPA protection areas heavily limit and/or impede building on many vacant lots.

    In the County I live in and many surrounding counties zoning restrictions severely limit the placement of manufactured homes, and I seriously doubt a CrossMod is going to alter anybody's mindset to change that restriction any time soon in spite of Secretary Carson's opinion they should.. Therefore the homes price point is restricted by restricting the building process in many zoning ordinances.

    I do believe there is a market for starter homes here given how fast they sell at present yet the restrictions to build regardless of the process and the lack of real property have an impact on its success overall.