SAN FRANCISCO, CA - Trulia, a leading destination for homebuyers and renters, released the findings from the Trulia Inventory and Price Watch. This quarterly look at the supply of starter, trade-up and premium homes on the market nationally and in the 100 largest U.S. metros found that markets with the biggest gains in home values since 2012 are facing the tight supply of for-sale homes.
Buyers Face Tightest Inventory Levels Heading into 2017 House-Hunting Season
Nationally, housing inventory hit its lowest level on record in the first three months of 2017. The number of homes on the market dropped for the eighth consecutive quarter, falling 5.1% over the past year. Across different housing segments, starter and trade-up home inventory fell 8.7% and 7.9% year-over-year nationally. Meanwhile, the stock of premium homes remained relatively unchanged since last year, having fallen just 1.7%.
Affordability Becoming a Bigger Obstacle for Starter-Home Buyers
This persistent and disproportional drop in starter and trade-up home inventory continues to make homeownership less affordable – especially for first-time buyers. A typical starter-home buyer would need to dedicate 38.3% of their monthly income to buy a starter home – a 2.9-point increase from last year. Trade-up and premium homes, on the other hand, are still relatively affordable despite being more expensive.
Home Value Recovery May Be Causing Inventory Crunch
A strong recovery may be partly to blame for the large drop in inventory some markets have experienced over the past five years. Housing markets – including San Francisco, Seattle, Nashville, Tenn. and Colorado Springs, Colo., – which have had greater home value recovery since 2012 have experienced larger decreases in inventory. In other words, not only are buyers in the hottest markets likely to be priced out, potential sellers may be locked in to their existing homes.
Ralph McLaughlin, Chief Economist for Trulia stated, "Recovering home values have proven to be a double-edge sword. While homeowners across the country are thrilled to regain equity in their homes, many have not been in a hurry to trade up. This has added to the inventory gridlock that ties up would-be starter-home inventory from ever coming on to the market, further constraining supply and decreasing affordability."
McLaughlin added, "Saving up for a down payment is one of the biggest obstacles to homeownership for first-time buyers. In markets plagued with tight inventory and decreasing affordability, Millennials who make up most of these first-time buyers may find homeownership increasingly out of reach. However, there continues to be an uptick in new construction – which should help increase supply in some inventory-constrained markets."