The number of homes for sale accessible to the average first-time home buyer saw its steepest year-over-year drop in three years, falling 12.1% since 2015, according to the Trulia Inventory and Price Watch report, released Wednesday. It also found that these buyers will need to pay 1.9% more of their income on average to buy a starter-home in their local market.
Nationally, housing inventory fell for the sixth consecutive quarter, dropping 9.1% from a year ago. Across different housing segments, home buyers saw the biggest decreases in starter and trade-up home inventory. The number of starter homes and trade-up homes on the market dropped 12.1% and 12.9% from this time last year, respectively. Meanwhile, premium home inventory fell a more moderate 5.6%.
Declines in the affordability of starter homes continues to plague first-time home buyers. Today, the average starter-home buyer will need to spend 38.5% of their monthly income to buy a starter home – a 1.9 percentage point increase from last year. This decline in affordability is more than twice as much for trade-up homes (up 0.9 percentage points) and nearly four times the amount needed to buy a premium home (up 0.5 percentage points). Comparatively, buyers of trade-up homes and premium homes would each need to spend 25.5% and 13.9% of their income to buy a home, respectively.
“Tight inventory will still be a big obstacle to home ownership in many markets in 2017, but I’m cautiously optimistic that we’ll see the bottom of the current housing shortage as the year progresses,” said Ralph McLaughlin, Trulia chief economist. “That said, buyers might not see price relief if President-Elect Trump’s to-be-seen policies boost demand without boosting supply.”
In many coastal housing markets, affordability has eroded significantly over the last year, especially in Tacoma, Wash. and Portland, Ore. In Sacramento, Calif., Los Angeles, San Francisco, San Diego and Miami, starter home unaffordability continues to be a persistent problem. Among the 100 largest U.S. metros, these metros ranked in the top 10 annual declines in affordability for starter homes from 2012 to 2015 and remain in the top 10 for declines in affordability for starter homes from 2015 to 2016.
McLaughlin continued, “As mortgage rates continue to trend upwards, home buyers in the costly coastal housing markets in California and the Northeast may get some relief. Rising rates will likely cool the fierce competition in these markets where inventory has been tightening and affordability has worsened.”
