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After focusing on move-up, custom, and luxury homes, home builders are poised to put more starter homes on the market to improve attainability and affordability for first-time and entry-level buyers, Zonda chief economist Ali Wolf shares with Wolf says in the next 12 to 24 months there will be a “notable increase” in the number of entry-level homes available.

Home builders have begun to focus on [entry-level buyers] in the wake of rising mortgage interest rates dramatically cooling off the housing market. Many current homeowners who don’t have to trade up into a new home at a higher monthly rate are choosing to stay put.

“Builders will increase their supply of entry-level homes, but it won’t be enough,” says NAHB chief economist Robert Dietz. This kind of home “will probably remain undersupplied. That’s frustrating news for first-time buyers.”

The shortage of skilled construction workers has persisted, supply chain issues have caused delays and pricier building materials and appliances, and there is a lack of land in many parts of the country. Builders must also contend with zoning restrictions and community opposition to smaller homes. Many local governments also charge builders impact fees, which can total tens of thousands of dollars in some places, to pay for new roads, schools, and water and sewer lines. Then throw in higher mortgage rates hampering demand for these abodes and a banking crisis that’s likely to make it harder for builders to get loans to erect new homes.

“There is a desire and an acknowledgment of the need for more entry-level housing, but there are also a lot of constraints that prevent that from happening,” says Wolf.

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