Inventory hits record low – and that’s bad news for first-time buyers

by Ryan Smith23 Mar 2017

One of the biggest problems facing homebuyers in recent years has been a shrinking inventory. A dearth of available houses has made it hard for borrowers to find something in their price range, and set off bidding wars that have helped drive home prices into the stratosphere in some markets.

And it doesn’t look like the inventory problem is getting any better. In fact, US home inventory has hit its lowest point on record, according to a new study from Trulia.

Nationally, the number of homes on the market dropped for the eighth consecutive quarter in Q1, falling 5.1% from Q1 of 2016. And the inventory shortage continues to be most dire for more affordable homes. Starter-home inventory fell by 8.7% year over year, while trade-up home inventory fell by 7.9%. Meanwhile, the stock of premium homes fell just 1.7% year over year.

“Recovering home values have proven to be a double-edge sword,” said Ralph McLaughlin, Trulia’s chief economist. “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.”

That disproportionate drop in starter-home inventory is making homeownership less and less affordable for first-time buyers. Right now, a typical starter-home buyer would have to dedicate 38.3% of his or her monthly income to buy a home, Trulia found. That’s a 2.9% increase from last year.

“Saving up for a down payment is one of the biggest obstacles to homeownership for first-time buyers,” McLaughlin said. “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.”

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