Despite robust housing market, the American Dream is proving elusive for first-time homebuyers

Modest-priced new homes are few and far away
For first-time buyers, new starter homes rare
Posted at 6:00 AM, Jun 17, 2016
and last updated 2016-06-17 10:04:31-04

In October 1947, Levitt & Sons Inc. started construction on America’s first mass-produced suburb in New York’s Nassau County.

Fueled by millions of returning GIs and the post-World War II economic boom, those communities, known as Levittowns, helped make buying a home the cornerstone of the American Dream and a rite of passage for young families. It also turned the home-building industry into a major growth engine of the U.S. economy.

A house in Levittown, N.Y., America’s first mass-produced suburb, pictured on a post card from the 1950s. A generation of Americans became homeonwers thanks to houses like this. (Flickr Commons)

The Tri-State was no different, as suburbs spread out from the urban core, first across Hamilton County, then into neighboring counties in Southwest Ohio and Northern Kentucky.

Since the Great Recession, an intertwined combination of factors has put that dream further out of reach for many first-time homebuyers. Besides the calamitous effects of the economic downturn itself — like a sharp spike in unemployment — those factors include tighter financing for companies and individuals, a focus by builders on the market’s higher end, and a corresponding dearth of sellers and skilled trade workers.

Though the housing market has shown fairly robust growth for about two years now, the recovery has been uneven, and first-time buyers remain more likely to be left out in the cold in their quest for a new home.

In April, the most recent figures available from local realtors associations, the median price of homes sold in Southwest Ohio was $138,000; in Northern Kentucky it was $132,000. That’s pretty close to the price most first-time buyers want, said Patti Stehlin, president of the Cincinnati Area Board of Realtors. The price of most new homes being built in the Tri-State, though, starts at around $300,000, she said — more than twice as high.

Nationwide, the National Association of Realtors reported that the median price paid by first-time buyers in 2015 was $170,000, while for repeat buyers it was $246,000.

Sandy Sieve, an agent for Star One Realtors in Colerain Township, said most of the first-time buyers she works with are looking in an even lower price range, around $90,000 to $130,000. She said first-time buyers have become a specialty of hers and make up almost 70 percent of her clients.

For those people, she said, new construction is effectively not an option. “They’re a minimum of $200,000,” she said of new homes.

Worse, she said, the inventory even of existing homes in that segment is far below demand. “It gets frustrating,” she said. “I get calls and texts from clients asking, ‘Are you really trying to find me a house?’ ”

Sieve said it’s often a race to get to a home to make an offer. She said she recently saw a listing on the county’s East Side. She and her client looked at it on its first day on the market. The owner got four offers that day, and her client, who even offered more than the asking price, didn’t get it.

Even in areas that are less in demand, she said, modest-priced homes sell in a matter of days.

Stories like those aren’t news to the region’s homebuilders, but Dan Dressman, executive director of the Home Builders Association of Greater Cincinnati, said his member companies are stuck for the near future. “There's a void now, and it's well known in the industry,” he said

He spoke by phone from the West Chester Township site of Homearama 2016, where the show’s seven designer homes are priced between $750,000 and $975,000. That’s a conscious scaling back from recent years, Dressman said, when the home show’s builds regularly broke the $1 million mark.

“The $150,000 price point is tougher and tougher to build and still make a profit,” he said. He blamed a combination of factors, most of them legacies of the slump that bottomed out eight years ago. Those include:

  • A shortage of lots. With financing to builders for several years reduced to a trickle, companies couldn’t bank land, let alone have it ready for construction. That requires planning infrastructure and securing a series of permits from governments. Now that builders are back in the market, land costs have risen with demand, too.
  • A shortage of skilled labor. While home construction is by nature cyclical, the depth and length of the last downturn slowed business to a glacial pace. With no relief in sight, many workers simply left the industry, Dressman said. They’ve moved on and aren’t coming back, he said, meaning developers are at the mercy of the available labor force until a new generation of workers joins the pool. That process takes a few years, he said, and that clock starts counting only after people trust the market enough to start training. A few years of solid demand is rebuilding that trust, he said, but the fruits for the industry are still a year or two off.
  • Rising material costs. Like many industries, construction supply companies often held the line on prices through the recession even as their costs rose. They’re making up for lost time now, Dressman said, and that’s driving up construction costs.
  • Rising expectations. “There are certain expectations (in a home today) even if you’re a starter buyer,” Dressman said. Compared to 20 years ago, he said, houses now are built with features that would have been expensive add-ons if they were available at all. That includes higher energy efficiency in doors, windows and insulation, and high-efficiency heating and air-conditioning systems.

Still, Dressman said, the shortage in lower-priced new construction is “a temporary condition.” Growth will trickle down to that sector once supply at the market’s higher end catches up with demand.

In fact, some of the Tri-State’s big builders are working to meet the demand. Northern Kentucky-based Drees Homes and Fischer Homes offer new designs for homes priced as low as $90,000. Fischer has collected its line of more affordable homes under a single brand, the Maple Street Collection, which it features in several of its communities in the region. It even created a page on its website to make first-time buyers more comfortable.

Interiors of the Fischer Homes’ Maple Street Collection incorporate amenities once reserved for higher-end construction, including open floor plans, granite countertops and stainless steel appliances. The Cumberland model is seen here. (Bradley Hernandez/Fischer Homes)

These more affordable communities have downsides, though. First is their location: They tend to be farther from city centers — well outside the I-275 loop. Steve Whaley, Fischer’s corporate marketing manager, cited growing Maple Street communities in Springboro, Warren County’s Franklin and Hamilton townships, Batavia and Union, Ky. The closest, off Harrison Avenue in Whitewater Township, is still outside the beltway.

Further, while these developments are priced well below much new construction, few of them would be affordable to Sieve’s first-time buyers. Glendower Place, Fischer’s Whitewater Township development, is advertised as starting at $210,000. The Springs in Springboro starts at $190,000. Some models are advertised as starting below $150,000.

Once buyers add a few builder options, Sieve said, their home’s final price is usually well above the listed minimum.

Whaley said Fischer also has refreshed its condominium models, which he said are a good option for millennials or empty-nesters. The new designs, he said, feature open floor plans and include many amenities usually reserved for higher-end single-family homes — like granite countertops and stainless-steel appliances. They start closer to $100,000.

The other option, Sieve and Stehlin agree, is simply for buyers to be more flexible. “Maybe it’s not turnkey,” Stehlin said. “Maybe you’ll have to rip out that old carpet.

“If the home has everything but the fireplace you want, do you really need that fireplace?”

Sieve agrees there are opportunities for those willing to work on their houses. She said progressively fewer buyers are willing to do that. “I don’t know if it’s both people are working and they don’t have time, or if they just don’t have the skills.”

One hurdle for buyers that’s gotten lower lately — especially for first-timers — is financing. Chad Curtin, a senior loan officer at Summit Funding Inc., said 30-year mortgages remain at historically low rates with a 5 percent down payment. Programs through Fannie Mae can reduce that to 3 percent.

In addition, many municipalities subsidize first-time buyers as development tools, often to boost targeted neighborhoods. One of the region’s largest is the American Dream Downpayment Initiative, known as ADDI, in the city of Cincinnati.

Curtin added that many people don’t know that most first-time-buyer programs are available to anyone who hasn’t owned a home for four years.

Ready to buy?

Whether they’re builders, lenders or agents, the experts all agreed on one thing for a smooth home-buying experience: start early.

“Talk to a lender three to six months ahead,” Curtin said. “You want your income and credit to be as good as it can be.”

“People should make sure they don’t have a lot of debt,” said Dressman.

Curtin said it helps to start by contacting a real-estate agent. They’ll usually refer clients to a list of lenders they’ve worked with successfully.

That way, people can make an offer when they find the perfect house.