Trying to catch a tiger by the tail might describe the way that many first time homebuyers are feeling. Nationwide housing market inventories are down for the ninth consecutive quarter according to our recent report. The inventory of starter homes is a mere 22.1 percent of the nation’s overall inventory. Furthermore, the amount of income necessary to purchase a starter home continues to rise.
Low tier homebuyers are not the only group experiencing frustration this year. Trading up into that next home maybe as challenging as buying that first home.
Housing Market Inventories are Shrinking for All Home Types
Housing market inventories are down across all segments (starter, trade-up and premium). Nationally, starter home inventories slid the most, plummeting 15.6 percent year over year. The drop of trade-up home inventories is sizeable too, slipping 13.1 percent. Premium home inventories fell the least with a 3.9 percent decrease. The drop in inventory has been precipitous since 2012. When comparing Q2 inventory levels for the number of homes still on the market after 60 days, 57 percent were still on the market at the end of June 2012 while 47 percent remained this year.
Starter and Trade-up Homes are Wanted Most
Available inventories are discordant with demand; inventories of starter and trade-up homes fall short when compared to online searches for homes in these categories. Just under 55 percent of all searches were for these home types. However, as of June trade-up and starter homes represented 42.2 percent of the nationwide inventory. The 13-percentage point gap is putting disproportional upward pressure on lower tier homebuyers.
Shortfalls are More Impactful to Starter Homebuyers
Homebuyers seeking a starter home must shell out significantly larger percent of their income than those purchasing a premium or trade-up home. Low tier homebuyers will need 39.2 percent of their income to purchase a home. In 2016, starter homebuyers needed 36.1 percent of their income, a 3.1 percent increase year over year. Home equity and appreciation helps trade-up homebuyers, 26 percent of their income is necessary, however, that is a 1.9 percent increase from 2016. Premium homebuyers have it the best, only needing 14.3 percent of their income this year, a slight 0.9 percent increase from last year.
The Lowest Inventories are on the West Coast
Homebuyers across the nation are experiencing bidding wars and making tough choices. In order to be competitive, homes sales are closing faster with buyers acquiescing to sellers in many instances. Yet in some markets, the competition is fiercer and the choices are harder. Markets that experienced the largest plunge in inventory over the past five years are the markets with the least amount of inventory left on the market after 60 days this year.
All three San Francisco Bay area metropolitan areas (San Jose, Oakland and San Francisco) had less than 25 percent of their inventory on the market after 60 days. Buyers seeking a home in East Queen Anne, Seattle should take heed, as well. Inventory in the Seattle metropolitan area was below 25 percent with a scant 21.9 percent of homes remaining on the market after 60 days. Salt Lake City, Utah, rounds out the top five swiftest moving markets, selling 74 percent of its inventory in 60 days.
East coast homebuyers are more fortunate. Buyers considering Miami condos or bigger homes in Fairfield County, Conn., can take their time, less than 40 percent of inventory in these metros moved in 60 days. Just over 42 percent of homes sold in 60 days in Winston-Salem, N.C., Knoxville, Tenn., and Greensboro-High Point, N.C.