Starter-Home Inventory Down 12% Over the Past Year

Mortgage

The inventory of starter homes is shrinking at an increasingly faster pace, leaving first-time homebuyers with fewer and more expensive options, according to a report from Trulia.

Since 2015, the inventory of starter homes has contracted 12.1%, Trulia found in its Inventory and Price Watch. This represented the steepest decline in more than three years.

But the market for starter homes isn’t the only one facing a crunch: The number of trade-up homes on the market fell 12.9%. Nationally, the housing inventory decreased 9.1% year over year, and the inventory of premium homes dropped by an even more modest 5.6% from 2015.

The tight supply of homes has made owning one a more expensive proposition for first-time homebuyers. The share of income needed to buy a starter home climbed 1.9 percentage points from last year, twice the increase seen for trade-up homes and four times that for premium homes. Altogether, first-time homebuyers must devote 38.5% of their income to purchase a median-priced home in the starter home segment.

Luckily, relief may be on the horizon for buyers looking for these homes.

“Rising rates will likely cool the fierce competition in these markets where inventory has been tightening and affordability has worsened,” Trulia Chief Economist Ralph McLaughlin said in a news release Wednesday. “Tight inventory will still be a big obstacle to homeownership in many markets in 2017, but I’m cautiously optimistic that we’ll see the bottom of the current housing shortage as the year progresses.”

McLaughlin warned though that politics could get in the way of some of this relief “if President-elect Trump’s to-be-seen policies boost demand without boosting supply.”

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