The Great Recession impacted the types of homes that Americans could afford as well as the types of homes that builders could profitably offer, and no category was more affected than the starter home.
At the peak of the last real estate boom, the number of new homes selling for less than $250,000 totaled 443,000. Since then, the number of single-family homes in this price range has plummeted, cratering to 146,000 in 2014.
This move away from starter homes is reflected in Builder 100/Next 100 data. Pre-recession, entry-level and move-up homes played a nearly equal role for the country’s top firms. During the downturn, entry-level home building declined while move-up increased. By 2014, entry level was a focus for about one-sixth of top 200 builders while move-up homes were being built by a little more than half.
Even though demand for affordably priced homes is on the upswing in many markets today, entry-level housing has yet to bounce back. Experts attribute this to supply constraints like soaring land costs, burdensome entitlement fees, and rising labor and material prices.
In 2017, 50 builders of the 200 builders on the Builder 100 reported that 50% or more of their closings were squarely in the entry-level market. That’s an increase from 2016, when 43 builders closed 50% or more of their homes in the entry-level sector, but still falls below the trend seen in 2010, when 70 builders were focused on the entry-level segment.