Lack of entry-level homes adds to homebuyer struggles

The tight inventory across many American markets is creating a particular barrier for millennials trying to enter the housing market

Lack of entry-level homes adds to homebuyer struggles
The tight inventory across many American markets is creating a particular barrier for millennials trying to enter the housing market.

Very few entry level homes are available to buy which is restricting the ability of those potential first-time buyers says First American Financial Corporation in data from its Potential Home Sales model.

Potential existing home sales increased to 5.82 million on a seasonally adjusted annualized rate, up 0.2% month-over-month and a 93.7% increase from the market potential low point of December 2008.
But potential existing home sales of 541,000 SAAR is 9.3% below the pre-recession peak of market potential in July 2005.

“Lack of supply continues to be the main story of the 2017 housing market. Just a few months ago, the difference between the actual level of existing-home sales and the market’s potential was negligible, but supply issues have become a significant impediment and are preventing the market from reaching its potential,” said Mark Fleming, chief economist at First American.

Fleming added that the pace of home building continues to lag demand with housing starts declining as economic improvements make homebuying more desirable.

“The pace of housing starts needs to increase significantly to meet demand and alleviate inventory challenges,” he said.

The lack of inventory relative to demand is driving the fast pace of price appreciation. The increases in nominal house prices, combined with mortgage rates higher than a year ago, are having a material impact on affordability.

“According to the First American Real House Price Index, affordability is down 10.2% in June compared to a year ago,” concluded Fleming.
 

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