One of the biggest stories in the housing market is the decline of the starter home.
In the late 1970s, they were building 418,000 entry-level homes per year. This is what that number looked like over the next few decades.
1980s – 314,000
1990s – 207,000
2000s – 150,000
2010s – 55,000
Less than 10% of new homes being built are starter homes, which is a 50-year low.
My thoughts on this subject are viewed through my experience. I live in the same town I grew up in. What I’m about to say might not ring true with you. Hedges off, moving on.
Everyone I know, and I should preface this by saying I don’t know too many people, but everyone I know lives in a nicer house than the one they grew up in. And it’s not necessarily because they’re all doing better than their parents. Houses today are bigger and nicer than the ones we grew up in. I’m not going to get into interest rates in this post, but obviously, this is a critical part of the story.
It seems like there is an island in every kitchen and granite on every counter. These things did not exist when I was growing up. What I remember were old wooden counters and walls all over the place. Open concept is the thing these days. There are no more walls.
Crown molding is now standard. Bathtubs are separate from the shower. Houses are turning into hotels.
I grew up in a neighborhood with some relatively large homes, but I don’t remember them being nice like they are today. Maybe I’m misremembering some of the details. I probably wasn’t noticing kitchens as a 9-year-old, but the data doesn’t lie. Houses are getting bigger, and thanks to HGTV, they’re definitely getting nicer.
Maybe part of the unaffordability problem is that expectations have gotten ahead of reality. Houses were more affordable for our parents because the ones they were buying bare little resemblance to the ones we’re buying. I know I’m generalizing, but I think there’s definitely some truth here. Again, I’m only speaking through my own experience.
Ben and I spoke about this and much more on this week’s Animal Spirits. We now have full episodes up on YouTube. Check it out below.
Michael Batnick is a managing partner at Ritholtz Wealth Management. He is the co-host of Animal Spirits, What Are Your Thoughts, and The Compound and Friends. For disclosure information please see here.