Starter home shortage may be easing

starter home photoPhoto (c) Homestead Homes

Some good news for first-time home buyers

For months now, Realtors have reported a declining number of homes on the market. Tighter inventories across the country not only means fewer homes to choose from, those that are for sale can command higher prices.

The problem comes at a bad time, because first-time buyers – primarily Millennials – are just now showing signs of taking the housing plunge. But there are fewer of the typical “starter homes,” in the low end of the market’s price range, to choose from.

While there are a number of reasons for the overall decline in homes for sale, the shortage of starter homes is primarily due to the fact that builders stopped building them after the housing bubble burst.

Last September, the National Association of Realtors (NAR) warned that the pace of new home construction in this lower price range was too slow in most metro areas and was contributing to persistent housing shortages and unhealthy price growth in many markets.

Starter home inventory recovering

NAR compared the volume of new home construction relative to the number of newly employed workers in 146 metro areas. The findings revealed that homebuilding activity for all housing types was not keeping up in roughly two–thirds of measured metro areas.

“Our research shows that even as the labor market began to strengthen, homebuilding failed to keep up and is now contributing to the stronger price appreciation and eroding affordability currently seen throughout the U.S.,” Lawrence Yun, NAR chief economist said at the time.

Now, eight months later, there may be some good news. Builder magazine, a trade publication for residential contractors, reported its annual survey of contractors showed a surprising uptick in entry-level residential construction.

Nearly extinct

In the latest survey, 45 of the builders on the Builder 100 List devoting 50% of their business to building entry level homes. A year before, the publication had declared the starter home “nearly extinct.”

The publication concludes that it remains to be seem if this is a trend or just a blip, but it says the evidence suggests the increase in demand for entry level housing has moved many builders in that direction.

 

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