A new report by online real estate database company Zillow shows a combination of price appreciation and tighter inventory for entry-level homes is making it increasingly difficult for first-time homebuyers to enter the market this spring.
Zillow’s first quarter Real Estate Market Reports shows the median price for entry-level and mid-market homes–the most affordable for first-time homebuyers–increased 4.8 percent year-over-year in March to a Zillow Home Value Index of $186,200. There were 5.9 percent fewer homes available for sale at the end of the first quarter than a year ago, while inventory for homes in those the lower housing segments decreased 10.4 percent than the previous year,
“It’s going to be a tough home-buying market this spring, especially for first-time buyers or even people looking to move up into a slightly more expensive home,” said Svenja Gudell, chief economist for Zillow.
First-Time Homebuyers Face Housing Shortage, Increased Prices
Home values in the bottom tier are growing faster than the other two segments in 18 of the nation’s 35 largest metro housing markets, with only six of the top 35 largest markets outpacing the bottom and middle tier.
The appreciation in entry-level home prices is being driven by a number of factors, according to the report by Zillow, which includes the strengthening household formation, continued growth in jobs and wages, and general confidence and optimism in the overall value of homeownership. The report goes on to say the likeliest contributor to the rapid growth is the lack of homes to buy.
On the flip side, buyers looking for the most expensive homes are finding slower price growth, a wider selection and far less competition this spring than entry-level buyers. Thee price cut in the more expensive homes on the markets is likely a signal there’s less demand for top-tier homes, as price cuts for top-tier listings has grown 1.6 percent over the past year.
Out of the 35 largest U.S. housing markets, more than a third of the homes available for sale are in the most expensive segment. In nine of those metro areas, more than half of all homes available for sale are in the top-tier segment. The end result is fewer homes in the bottom and middle of the markets, which are typically the most affordable for first-time buyers.
“This is leading to a situation where majority of homes for sale in many markets are more expensive homes not typically sought by budget-conscious entry-level and younger buyers,” said Gudell.
Zillow’s 2016 Outlook
The latest report shows the median U.S. home value in March increased 0.4 percent from February, as home value have now grown on a year-over-year basis for 45 straight months.
In 25 of the nation’s 35 largest metro markets, home values grew more than the national average of 4.8 percent in March, with home values in seven of those large metro markets growing by more than 10 percent: Denver (up 15.7 percent year-over-year), Portland (14.8 percent), Dallas (13 percent), San Jose (12.6 percent), Seattle (11.7 percent), San Francisco (11.5 percent) and Miami (10.5 percent. There were no home value declines in March for any of the nation’s largest metro areas.
According to the report, the outlook for national home values is expected to increase another 2.7 percent through March 2017 to a Zillow Home Value Index of $191,257. “Which means the market could be setting up to be pretty tough for potential buyers this spring, especially for first-time buyers and those looking to move up from their first home and into a slightly more expensive place,” said Gudell.
“In order to stand out in a competitive market, buyers should get pre-approved for a loan, find an agent who has experience with bidding wars, and consider coming in at the asking price, so the seller knows they’re serious.”
First-time buyers this spring selling season should do their due diligence when shopping for homes, taking into consideration the current economic and housing conditions in their local area.