October 5, 2012 in Business

Skipping the baby steps

Mortgage rates lead some to larger homes
Jim Buchta McClatchy-Tribune
 

Mike and Ann Jeweson, both in their 20s, are taking advantage of low interest rates to make the four-bedroom home behind them their first home. It’s in Medina, Minn.
(Full-size photo)

Record lows

The average rate on the 30-year mortgage dropped to 3.36 percent this week, the lowest since long-term mortgages began in the 1950s. The rate on the 15-year mortgage dipped to 2.69 percent, also a record low.

Associated Press

Joseph and Kayla Simons aren’t your typical first-time home buyers.

Armed with low interest rates, bargain prices and good income, the young couple sidestepped a starter home and bought a 3,000-square-foot house on a tree-lined street in Maple Grove, Minn.

“Since we knew we could easily afford to buy more than we were initially looking to spend, the choice was quite simple,” said Joseph Simons. “Why not buy a forever home with everything we want?”

Real estate agents say more twentysomething, childless buyers are snapping up sprawling homes instead of starting out small. It’s a trend that’s gaining momentum as young buyers seize on some of the best housing deals in history.

While the shift is unlikely to kick-start construction of new subdivisions filled with McMansions, it’s helping to revive sales of midpriced and upper-bracket houses. The Simonses, for instance, initially planned to spend about $200,000 on a townhouse, but ended up spending tens of thousands more once they started shopping.

“The more starter homes we saw, the less impressed we became,” Joseph Simons said.

Clearly, most first-timers don’t have the financial muscle to buy their dream house, but with rents on the rise, the Simonses and other young buyers face competition from investors who can pay cash for inexpensive properties they can use for rentals.

For the Simonses, increasing their budget increased their options, even though they bought a house that has far more space than they need.

“At this point the house still feels a little big, but we love it,” Joseph Simons said. “And when we decide to start a family, we don’t have to go anywhere.”

This shift to larger homes runs counter to buying trends in recent years that showed higher demand for smaller houses. When the recession hit, many builders decreased square footage and touted their homes as more efficient and economical for buyers.

But Walter Maloney, spokesman for the National Association of Realtors, said many of today’s buyers are realizing that it could take many years to gain enough equity to trade up to a costlier house, so many are planning to stay longer. Last year, the typical buyer expected to be in their house 15 years compared with 10 years in 2010, he said.

Lennar sales agent Jeremy Berg said he has several young, childless buyers who are building 3,500-square-foot houses that will serve their needs for at least a couple of decades.

Steve Howe, a sales agent for Remax Results in the Minneapolis area, said the primary driver is a basic fear that mortgage rates may never be this low again.

“If they can lock in a $300,000 or $350,000 mortgage at 3.5 percent, that’s as good as gold,” said Howe.


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