Trulia: Starter, Trade-Up Home Remain Scarce

Even before Hurricanes Harvey and Irma damaged or destroyed large swaths of housing–by some accounts, 25 of all single-family homes in the Florida Keys-the gap between homes for sale and what homes buyers are looking for was widening, said Trulia, San Francisco.

In its periodic Mismatched Markets blog, Trulia Economist Felipe Chacón analyzed home searches and for-sale inventory on Trulia between April to June (Q2 2017) from a year ago (Q2 2016). He said while home builders continue to finish with luxury homes, starter and trade-up homes remain scarce.

“Potential buyers are discovering that it’s becoming harder to find starter and trade-up homes, but expensive luxury homes are flooding the market,” Chacón said. “At the same time that premium listings are saturating the market nationally, searches for starter and trade-up are making up a larger share of all search activity. This is trouble for most first-time homebuyers, especially when put in the context of historically low inventory across all price ranges.”

Nationally, Trulia said its housing market mismatch score for all homes grew to 14.7 from 9.2 over the past year, reflecting a marketplace that’s becoming more unbalanced. (This score is on scale of 0 to 100, with 0 being perfectly matched and 100 being completely mismatched).

For some metro areas, Chacón said, the mismatch gap has grown as the share of starter and trade-up listings has decreased to 45.8% of all listings from 46.5% a year ago. Meanwhile, searches for starter and trade-up homes has risen to 60.5% from 55.6%. “This means starter and trade-up home buyers are increasingly getting pinched with an 8.0 and 6.7 percentage point shortfall of listings relative to search interest, respectively,” he said.

Chacón noted Houston–until Hurricane Harvey–was the most unbalanced market in the country, mostly due to its shortage of starter and trade-up homes. “While it’s still too early to know the full impact on the local housing market, we do expect to see changes in market mismatch in the coming months; the nature of which will depend on how home developers, buyers, and sellers respond to a post-Harvey economy,” he said.

The mismatch appears in other metros as well. In Richmond, Va., for example, top-end listings have flooded the market; at the same time that a smaller portion of search activity was directed at these properties. The percentage point gap between the searches and listings nearly doubled to 17.3 from 8.9. In Detroit, a market where searches historically were aimed at more expensive homes, the market mismatch fell the most, going from 11.1 to 3.6 as the surplus of cheap homes disappeared from the listings.

“With mortgage rates remaining favorable and unemployment low, the home buying waters probably seem welcoming enough to bring out more home buyers, many of them younger and first timers,” Chacón said. “But with inventories at historic lows and the make-up of that inventory continuing to slide away from the make-up of home buyer interests, we expect many starter and trade-up home buyers are going to find a competitive market with few options, with the possible exception of those in a handful of unique markets.”

The blog can be found at https://www.trulia.com/blog/trends/mismatch-q317/.