Zillow: First-Time Buyers Face Lack of Inventory, Higher Prices

Zillow, Seattle, said entry-level homes are rising in value the fastest in most large U.S. housing markets, making it tough for first-time buyers to enter the market this spring.

The company’s first quarter Real Estate Market Reports said 5.9 percent fewer homes are for sale in the U.S. than a year ago and 10.4 percent fewer entry-level homes for sale in the U.S. than a year ago.

The report said low supply is driving up home prices among entry-level homes, which are often sought after by first-time buyers. National home values rose 4.8 percent to $186,200, the report said. Rents rose 2.6 percent to $1,389.

Zillow Chief Economist Svenja Gudell said data suggest difficult times ahead for first-time homebuyers looking to enter the market. Going into home-shopping season this spring, she said, buyers will find fewer homes in the bottom and middle of the market–the homes most affordable for first-time buyers.

“It’s going to be a tough home-buying market this spring, especially for first-time buyers or even people looking to move up into a slightly more expensive home,” Gudell said. “To stand out in a competitive market, buyers should get pre-approved for a loan, find an agent who has experience with bidding wars and consider coming in at the asking price, so the seller knows they’re serious.”

Zillow said the median value of entry-level homes, those in the bottom third of the market, rose the most over the past year in Denver, up 20 percent, followed by Portland and Dallas. Denver reported 13 percent fewer entry-level homes available than a year ago. The number of entry-level homes available declined the most in Portland, with 40 percent fewer entry-level homes available than a year ago.

In all of the largest U.S. housing markets, Zillow said more than one-third of homes available for sale are in the most expensive segment–the top third of the overall housing stock in the market. In nine markets, top-tier homes make up more than half of the inventory.

Gudell said most expensive homes on the market are more likely to have a price cut, a signal that there’s less demand for top-tier homes. The share of top-tier listings with a price cut has increased 1.6 percentage points over the past year.

Monday morning, Black Knight releases its latest Home Price Index report, looking at February 2016 real estate transaction data, and I wanted to make sure you had time to review the month’s findings before public release.