First-time buyers get squeezed even more as new homes get larger

Developers are building bigger and bigger new houses, making it even more difficult for millions of Americans to purchase their first home.

Q. We are first-time buyers, but all of the new homes in our area (which we like) are too big for our needs, and their prices are too high for us to afford. How come builders aren’t building smaller “starter” homes anymore?

A. They are, but you will probably need to look elsewhere to find them or settle for a smaller, older home or condominium if you insist on remaining in your current area.

According to the Census Bureau, the size of newly built homes in the U.S. averaged 2,541 square feet in the third quarter of this year. The figure has steadily been rising, in part because the prolonged drop in mortgage rates that began a few years ago has made it easier for many buyers to buy bigger houses.

It is a trend that many experts say will continue for the foreseeable future. “Going forward, we expect home sizes to increase again, given a shift in consumer preferences for more space due to the increased use and roles of homes — for work, for study — in the post-COVID-19 environment,” says Robert Dietz, chief economist for the National Association of Home Builders.

Unfortunately, that trend will further tighten the vice on first-time buyers like you. The number of for-sale “starter” homes, which the National Association of Realtors defines as properties with fewer than 1,850 square feet, had already plummeted by more than half over the past five years.

There were only 300,000 such homes for sale nationwide at the end of the third quarter, NAR reports, and the median price was up a hefty 11 percent from the year before.

REAL ESTATE TRIVIA

A recent survey of U.S. developers conducted by NAHB found that crucial building materials — especially lumber, appliances, glass and prefabricated doors — have reached their lowest levels in history. The shortage has added several months to the construction process and more than $36,000 to the cost of a new single-family home.

Q. How long will the bankruptcy I filed a few years ago stay on my credit record?

A. If you filed Chapter 7 — often called a “straight” bankruptcy because no money is repaid to any creditors — it will stay on your record for 10 years from the date of the filing.

If you instead filed Chapter 11, which requires that at least some of the debt is paid back, it will stay on your credit record for seven years from the filing date.

Q. My husband and I are getting divorced. He is a dentist, makes a lot more money than I do, and says he would like to keep our longtime home. He promises to make all of the future mortgage payments if I agree to sign a “quitclaim deed” that would give my halfinterest in the home to him. This plan seems reasonable to me and would allow us to avoid messy and expensive divorce proceedings. What do you think of this idea?

A. Frankly, “not much.”

I do not know how much you trust your soon-to-be-ex or how contentious your divorce may eventually become.

For legal purposes, though, the lender on the home that you and your spouse currently share can hold you personally liable for the entire balance of the mortgage if it goes unpaid. That is because you and your spouse each cosigned for the loan, which means that you must pay the entire bill if he cannot or will not pay it later.

Signing a quitclaim deed would not be some legal panacea. It would simply mean that you would give up all your legal interest in the property but still be liable for future payments.

The quitclaim would cede your half-interest in the home to your husband, so in a worst-case scenario, if he stopped making the monthly payments, the lender could insist that you continue making regular installments on a house you no longer own.

If the bank must eventually foreclose, it would leave a scar on your credit record that would last for several years.

Your letter states that your husband is a dentist and earns “a lot more money” than you do, so he should try to refinance the current mortgage in his name only. That would sever your financial ties to both the home and the bank.

Of course, the simplest solution would be to sell. Proceeds from the sale would pay the lender, you would not have to worry about future loan payments, and any profit left could be split however you and your newly minted ex agree.

If anyone needs to consult a reasonable divorce attorney today, you do.

Send questions to David Myers, P.O. Box 4405, Culver City, CA 90231-2960, and we’ll try to respond in a future column.