by: Ralph B McLaughlin
Chief Economist at Trulia
Nationally, the number and share of starter and trade-up homes on the market has decreased over the past four years. We find increases of premium home prices are strongly correlated with a drop in the number of trade-up homes on the market, while a larger share of homes owned by investors is likely affecting the supply of starter homes.
America is experiencing a housing shortage. Not only are there fewer homes available to buyers of all income levels, those just starting out or making their first foray into home ownership are worse off than they’ve been in years. There are fewer homes available, an even if they can find a home, it’s likely to be more expensive.
Compared to other inventory reports, the Trulia Inventory and Price Watch is a new quarterly report that offers buyers and sellers deeper insight into the supply and affordability of homes within different segments: starter homes, trade-up homes, and premium homes.
Home seekers need information not just about total inventory, but also about inventory in the segment they are interested in buying. For example, changes in total inventory or median affordability don’t provide first-time buyers useful information about what’s happening with starter homes. In addition, there is also a strong relationship between inventory and affordability in the three segments, so it’s important to track segment changes because that change is likely to induce change inventory and affordability in other segments.
Looking at all the housing stock nationally and in the 100 largest U.S. metros from January 1, 2012 to March 1, 2016, we found:
- Nationally, inventory has dropped most for starter and trade-up homes, but less so for premium homes;
- Regionally, starter home inventory is down most in the West and South. Starter home affordability is down most in California;
- Rising prices is causing homebuyer gridlock. The growing price spread between premium homes and trade-up homes in some markets is highly correlated with fewer trade-up homes coming onto market.
Nationally, Starter and Trade-Up Home Inventory Down More Than 40% Since 2012
Heading into the spring house-hunting season, inventory remains tight and affordability is worsening, especially for starter-home buyers. Over the past four years:
- The number of starter homes on the market dropped by 43.6%, while the share of starter homes dropped from 30.2% to 27.7%. Starter homebuyers today will need to shell out 5.6% more of their income — based on the median income of start-up buyers — towards a home purchase than in 2012;
- The number of trade-up homes on the market decreased by 41%, while the share of trade-up homes dropped from 27.2% to 26.1%. Trade-up homebuyers today will need to pay 2.6% more of their income for a home than in 2012;
- The number of premium homes on the market decreased by 33.4%, while the share of premium homes increased from 42.7% to 46.2%. Premium homebuyers today will need to spend 1.4% more of their income for a home than in 2012.