If buying a home represents the American family dream, buying a better one is the popular sequel.
With the economy growing and interest rates still at 30-year lows, many homeowners are trading up–buying “better” homes, though the purchases are tempered with extreme caution.
“Better” reflects a grab bag of improvements: greater square footage; fancier finishes such as marble, granite and stainless steel; larger landscaped yards; improved schools; safer neighborhoods; shorter commutes to work; greater prestige; and closer proximity to family and friends.
Better also is relative to location and price. Paul Gorney, of a Coldwell Banker city office, says his moveup buyers want parking and a second or third bedroom for a home office or nursery. He cites the developments in the 1400 block of West Henderson Street and the 1800 block of West Diversey Parkway as popular moveup complexes.
In the suburbs, real estate agent Laura Sechen of First Service in Riverside says many of her clients moving up seek a fourth bedroom, a second or third bathroom, a larger garage and a better address. “A lot of people have built up equity from an existing home and want to parlay it into something better.”
Dan and Judy Brame are a case in point. While they describe their former four-bedroom ranch in Wheeling as “nice,” they found its rooms too small and they missed not having a separate dining room and any basement or garage.
Six years later and with a 2-year-old daughter in tow, they had their home appraised and went house hunting. “Once we knew it had appreciated more than we thought, we decided the timing was right,” says Dan, band director at a suburban high school.
They bought a split-level home in Libertyville with all the amenities on their wish list: a bigger yard with mature landscaping and fencing, more windows for a brighter interior, a half-finished basement and garage, proximity to shopping, and a neighborhood with potential playmates for their daughter and stay-at-home moms for Judy, formerly a band director at another school.
But the Brames’ story also demonstrates a decided change. Many buyers, particularly first-time ones, historically have suffered the pangs of buyers’ remorse–worry over whether they made a good decision.
But buyers, especially in the ’80s, often traded up willy-nilly, thinking that taking on more debt was equivalent to prudent investing. “If people saw something they liked, their attitude was, `Let’s get it,’ ” says Jim Kinney, president of Rubloff Residential Properties in Chicago.
That frenzied activity has calmed, and people like the Brames who trade up do so after great debate. The Brames chose a house they could live in for the next decade “or forever,” according to Dan. They also cut back on movies and eating out to afford the extra expenses while they continue to set aside money for retirement.
“People are moving more for necessity than for status or investment. They want new homes for larger living spaces or more bedrooms, and they do their research and know exactly what it will cost to purchase and afford the home,” says Laura Good of Ariston Realty Corp. in River Forest.
This new aura of cautiousness is also reflected in the amount of work homeowners are willing to take on if they buy a more expensive home,” says Francie Pinkwater of Prudential Properties in Highland Park. “In the past many were willing to do a lot of work. Now, many want houses where the work already is done so they know there are no hidden future expenses. They also want good value, amenities like schools and parks, and reasonable taxes.”
Many, in fact, seek new construction in the city or suburbs where everything’s completed, says Rubloff’s Kinney. “Young buyers in particular like having something with brand-new warranties. The freshness appeals. The hottest ticket in Chicago is a double lot in Lincoln Park where someone can build their own home. The Gold Coast single-family market is also the strongest it’s been since 1989.”
There are several reasons for the new caution, none of which has to do with banks tightening their rules on lending. They have kept to their longstanding rules of thumb, which include measuring a buyer’s ability to pay against “front” and “back” ratios that Fannie Mae (the Federal National Mortgage Corp.) has established as guidelines and factoring in individual circumstances, says Ed Lewakowski of Security Federal Bank in Berwyn. (The front ratio says that a buyer’s total housing payment for principal, interest, taxes and insurance should not exceed 28 percent of his or her gross monthly income. The back ratio, which also factors in any monthly debt payments for credit cards or cars, etc., should not exceed 36 percent of gross monthly income.)
Instead, the hesitation has to do with a convergence of demographic trends and corporate reshuffling: more frequent discussions about a looming retirement crisis that soon may affect the Baby Boom generation, whose first members turned 50 this year; a pervasive and genuine concern that jobs aren’t as secure since companies continue to downsize and merge; and a paring of corporate pension and medical benefits that shows no signs of letting up as businesses look for other ways to cut costs.
Public relations executive Rhonda Sanderson hemmed and hawed about moving to a larger condominium in her Highland Park neighborhood. A single mom, she was nervous about taking on more debt and greater monthly expenses, but she also felt that her 1,000-square-foot two-bedroom had become too cramped for her and her 10-year-old daughter.
Sanderson justified the move to a 1,500-square-foot three-bedroom unit in the same complex and one with nicer finishes for additional reasons. She decided that it was a safer option for two females than a single-family home, her daughter wouldn’t have to change schools and the extra costs would be a form of forced savings. Before she took on the additional expense, she researched the resale market in her development and found it healthy, particularly for the three-bedroom units.
As a result of the mixed economic forecast, many people who need more space decide to stay put and add on or move to an area where they get more for the same amount of money. “They’ll look for what’s available and then decide that it’s cheaper to put a $150,000 addition on their $400,000 home than to buy another home for $800,000,” says Prudential’s Pinkwater.
Others like Linda and Mike Larmon hedged their bets and considered both options–moving and remodeling. The Riverside couple added a 15-by-30-foot family room to the suburban home they had lived in for 17 years, after moving from their first home in Chicago’s Mt. Greenwood neighborhood.
When a two-story brick Mediterannean house that they long had admired and that had a larger back yard, became available in Riverside, they decided to move anyway, in spite of the $50,000 price hike. “A lot of our friends thought we were crazy because we’re empty-nesters, but we found that once our children had families of their own, we actually needed more space for family dinners. Our daughter now comes from Peoria with her husband and daughter and stays with us. We’re also young–in our 40s–and have made good investments for our retirement, so we figured we could afford the extra costs,” says Linda, who teaches high school Spanish in Burbank.
It seems that even first-time buyers are “moving up.” Many new buyers are requesting substantial upgrades in already expensive properties before they move in, says Bill Moran of Bill Moran & Associates. In one development that his firm is building at 1414 N. Wells St. in Old Town, many owners are putting $80,000 into condominiums that already cost between $165,000 to $365,000.
Where are the extra funds going? Into fancier materials such as granite for countertops, into fancier steam showers, into better maple rather than laminate cabinets, into more luxurious sound systems and into larger rooms, created by knocking down walls.
“What they’re looking to do is to customize their new homes for their individual lifestyles,” Moran says. “They equate uniqueness of design with value, which will help the units sell later on.”
