Starter Home Shortage ‘Worsening’

Trulia, San Francisco, said the number of available homes for the average first-time homebuyer saw its steepest year-over-year drop in three years, 12.1 percent, over the past year.

Worse, Trulia said, buyers have to pay more to get them: 1.9 percent more of their income, which the company termed “an increasingly unaffordable pace.”

The report examined affordability since 2012 and compared annual change until 2015 to declines in affordability in the last year. It found some markets have drastically slowed their pace of unaffordability, while in others, declines in affordability of starter homes continue to plague first time home buyers.

Key findings:
–Starter homes continue to represent less than one-quarter of available inventory nationwide, while premium homes make up more than half.
–Starter and trade-up home inventory have tumbled by 12.1% and 12.9%, respectively, during the past year. Affordability of starter homes has declined more than twice as much as trade-up homes and nearly four times as much as premium homes.
–The number of premium homes on the market decreased 5.6%, while the share of premium homes increased from 49.9% to 51.1%. Premium homebuyers will need to spend 0.5% more of their income for a home than last year.
–Starter home unaffordability persists in a number of California markets such as Sacramento, Calif., Los Angeles, San Francisco, San Diego and Miami. These cities ranked in the top 10 annual declines in affordability for starter homes from 2012 to 2015 and remain in the top 10 for declines in affordability for starter homes from 2015 to 2016.

“Even if first-time buyers can find a home, they may not be able to afford it,” the report said. “Households will need to spend nearly 39% of their monthly income to purchase a home.”

In some markets affordability has eroded significantly, the report said. In six markets the share of income needed to buy a starter home increased an average of 3.3 percentage points in the past year, compared to the prior three-year period. Northport-Sarasota, Fla., moved up to the metro with the fourth-largest increase in the percentage of income needed to buy the median starter home, demanding 6.1 percentage points more income over the past year.

Other markets saw unaffordability easing in the past year versus previous years. For example, starter home buyers in Las Vegas saw a 5.1 percentage point annual increase in the percentage of income needed to buy the median starter home from 2012 through 2015, the ninth-largest increase of the top 100 metros. Over the past year, however, that rate slowed to 1.7 percentage points, making it the 44th fastest increase.

The report can be accessed at https://www.trulia.com/blog/trends/inventory-q42016/.