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If you’ve been searching for a new home, whether to buy your first or “trade up” into a larger or fancier home, chances are you’re having a hard time finding suitable options. That’s because availability of starter (median price $154,156) and trade-up (median price $267,845) homes on the market has decreased over the past four years all across the country, according to a new quarterly report on the supply and affordability of homes.
The Trulia Inventory and Price Watch found that increases of premium home prices (median price $542,805) are strongly correlated with a drop in the number of trade-up homes on the market, while a larger share of homes owned by investors is likely affecting the supply of starter homes.
“America is experiencing a housing shortage,” the report concluded. “Not only are there fewer homes available to buyers of all income levels, those just starting out or making their first foray into home ownership are worse off than they’ve been in years. There are fewer homes available, an even if they can find a home, it’s likely to be more expensive.”
Trulia looked at the national housing stock in the 100 largest U.S. metros from Jan. 1, 2012, to March 1, 2016, finding:
Over the past four years:
Why does the premium price spread matter? The more premium home prices rise, the more difficult it is for trade-up homeowners to find a premium home that fits their budget. And if trade-up homeowners can’t find a home that fits their budget, they are less likely to sell their existing home.
“In fact, there is a strong correlation between growth in the premium home price gap and a drop in the inventory of trade-up homes,” the report said. “In other words, housing segments are intertwined. The more premium prices rise, the less likely existing trade-up homeowners will put their home on the market.”
Nine of the 10 metros experiencing the largest drop in starter home affordability – which is affected by both the number of listings and home-buying demand – are located in the California. Starter homebuyers in Oakland, Calif., would have to spend nearly 70% of their income to afford a 30-year fixed-rate mortgage on a starter home, which is 29% more of their income than in 2012.
Demand for starter homes remains high because of strong job growth, the report said. Faced with growing demand and tight supply, prices of all homes in California have risen sharply over the past few years.
This means buyers must settle for smaller, less expensive homes than they might otherwise buy elsewhere.
Remember, regardless of whether you’re looking to buy your first or fifth home, a good credit score can help you get the best mortgage rates, so if you find your score isn’t in as good of shape as you’d like, take some time to make an effort to improve your credit before home shopping. You can get two of your credit scores for free every month at Credit.com.
Graphics: Trulia; Main image: Highwaystarz-Photography
December 13, 2023
Mortgages