A new report by online real estate marketplace Trulia paints a bleak picture for many first-time home buyers, especially in cities, finding these potential new owners face a significantly more challenging marketplace than they did four years ago. In major markets across the country—95 out of the top 100—new buyers not only face severely constrained inventory, but find the available homes are often highly sought after and significantly more expensive.
In an analysis titled "House Arrest: How Low Inventory Is Slowing Home Buying," Trulia Chief Economist Ralph McLaughlin summarized the company’s new quarterly Inventory and Price Watch report, which breaks down the housing market of the country’s 100 largest metro areas into three specific segments, starter, trade-up, and premium homes. By charting changes in these markets segment from 2012 to 2016, researchers discovered that inventory for starter and trade-up homes has dropped precipitously, 40 percent on average across the nation, and more than 80 percent in some fast-growing markets, including Austin, San Antonio, San Diego, and Salt Lake City, which has seen its supply of available starter homes drop 87.7 percent.
Trulia defined segments in this report focusing on home value estimates, not listing prices, in an effort to avoid distortions based on, say, a large number of high-priced homes in a particular market. The homes and condos in each market were then divided into thirds.
The Trulia data shows how a shortage of affordable, entry-level homes and rising prices are making things much more difficult for first-time and millennial homebuyers. The share of income needed to buy a starter home has jumped from 32% to 38% on average since 2012. Among other factors, the increasingly challenging nature of purchasing a first home has contributed to gridlock across the market; the report found increasing prices and limited availability have impacted all three sectors.
Cities in the south and west—especially, not surprisingly, California—have seen some of the steepest jumps in the share of income needed to purchase a starter home, and corresponding decrease in affordability. Due in part to the tech boom and an especially crowded market, buyers in the San Francisco, Oakland, and San Jose areas have required an additional 25 to 30 percent of their income to buy a median-priced starter home. Alternatively, the Rust Belt and Mid-South, in cities such as Little Rock, Arkansas (17.3% of income), Toledo, Ohio,(14%) Detroit, Michigan (9.6%), and Kansas City, Missouri (16.8%), offer much more affordability,