Housing availability is one of the main drivers of home prices. In today’s climate of low inventory and high demand due to the near historic-low rates, it only follows that home values go up. So while it is already a challenge for many homebuyers to find an affordable home, they still need to face the problem of finding an available home first.
In a recent report by online residential real estate site Trulia, it is found that housing inventory continued to drop for the first quarter of the year. This decline is more pronounced in the starter home and trade-up markets.
Per Trulia’s report, using the previous year as baseline, starter homes fell to 25.9 percent from 26.9 percent from Q1 of 2016. Trade-up homes also fell from 24.1 percent to 23.03 percent. Meanwhile, premium homes increased by two percentage points to 51 percent compared to last year’s 49 percent.
Trulia utilized data from 100 of the largest metros in the country, within a period spanning the first quarter of 2012 to the first quarter of 2017. Within this timeline, the starter home inventory fell by 8.7 percent while the trade-up home inventory dropped by 7.9 percent. Meanwhile, premium homes inventory fell by 1.7 percent only.
The chart below shows how the inventories for different home types fared since 2012. Notice how premium homes seemed to keep a level pace after that bad 2012-2013 run while starter and trade up homes kept down since Q1 2015.
Of course, as inventory plummeted, home prices picked up. Today, you’d need 2.9 percent more of your income, for example, to buy a starter home.
Trulia attributed the fall to the following reasons:
- Many investors hold properties and use them as rentals.
- Price spread across different segments of the housing market makes it difficult for homeowners to trade-up
- Slow home value recovery poses a barrier to breaking even or gaining enough equity to sell
If you’re a first timer in home purchase, you may find it extra difficult – not that it’s always been easy – to find a home, much less an affordable one (although not impossible). Before you tackle the market head-on, prepare well and never take half-hearted decisions.