Can First Time Buyers Find Starter Home in This Market?
You are finally ready to jump into home ownership! You’ve met the tougher mortgage qualifying standards from recent years, have saved up for your down payments, have already done your homework and know what you can afford.
But can you actually find a home?
The biggest problem facing first-time homebuyers these days is actually the low inventory of homes in the starter home price range.
According to the National Association of Realtors, the number of homes for sale nationwide at the end of November 2016 was 9.3 percent lower than it was a year earlier, and the year-over-year totals have been dropping for the last 18 months. At the current rate of home sales, the inventory is only enough to last four months – short of the six-month inventory for a balanced market of homebuyers and available homes.
And these numbers are for all home sales. The inventory of homes for sale at the lower price ranges is even smaller, and popular neighborhoods can be a challenge!
An analysis by the real estate portal Trulia found that only 24.8 percent of the homes for sale at the end of 2016 were in the starter price range (defined as the lower third of all home values per market), and that number was 12 percent lower than at the close of 2015.
So what is affecting the number of homes for sale in lower price ranges:
Fewer single-family homes are being built, especially starter homes. Builders cite tight credit, difficulty finding land and, most important, a severe shortage of labor. While the National Association of Home Builders expects to see 10 percent more single family homes being built in 2017, the number of new homes is still likely to fall short of demand. According to U.S. Census Bureau data, the median price of new homes sold in November 2016 was $305,400, and the average price was $359,900.
People are staying in their homes longer. From 1987 through 2008, Americans stayed in the same home for six to seven years. But that number has been rising, and according to NAR data, the median time Americans lived in the same home was 10 years in 2016.
Investors are holding on to their starter homes. The percentage of investors as a share of existing U.S. homebuyers has declined as prices have risen. Investors bought 12 percent of the existing homes sold in November 2016, down from 16 percent in the previous year, according to NAR data. But with rents at an all-time high, investors aren’t selling the inventory they already hold as the rent is more profitable.
While the low inventory doesn’t make it impossible to buy a home this year, it makes things more challenging, and you should be prepared for a lengthier process than you have seen in the early stages of 2016.