One of the big trends in the housing market over the past few years is that, as more millennials try to buy homes, they are scooping up lower-priced properties in mass quantities. Coupled with the fact that relatively few homeowners are selling these kinds of starter homes, and construction companies can't put up new houses fast enough, this is creating an incredibly tight market at the lower end of the housing sector, and it's not likely to change any time soon.
Starter homes – those priced in the bottom one-third of home values in the market – still make up a relatively small share of all houses being put up for sale these days, coming in at just 22.4 percent of all properties on the market in the first quarter of the year, according to new research from Trulia. That was down from 22.8 percent on both a quarterly and annual basis.
At the same time, premium-priced homes – those valued in the top third of the market – made up 52.5 percent of all listings, the report said. That left mid-priced properties making up a mere 25.1 percent of all homes on the market.
Why is that a problem?
Obviously, not all would-be homeowners are trying to purchase properties priced in the top third of the market, so there is a bit of a disconnect between what shoppers may be able to afford (or at least what they want to buy) and what's actually available, the report said. That gap is shrinking these days, but nearly 29 percent of all home listing searches are focused on starter homes, and about 30 percent are looking for mid-priced homes.
Many experts believe young shoppers are not just bailing on the housing market when they can't find a starter home, but rather putting in the legwork to be able to boost their buying power into the mid-range "trade-up" houses, according to USA Today. Many young adults have spent so long renting and saving up for a down payment that the additional several thousand dollars they need may not be all that difficult to put together. This might be particularly true thanks to the improving economy and rising pay.
Meanwhile, many millennials could now also be thinking of themselves staying in their homes for longer than they might have expected, given the tightness of the market. Starter homes are usually just that: A place for new buyers to spend a few years, build equity, then "trade up" for a higher-priced home, according to Nerdwallet. That might not be in as many young shoppers' plans because of current conditions and long-term economic forecasts.
With these issues in mind, it's worth noting that prices (particularly for starter homes) and mortgage rates are only expected to keep rising. As such, shoppers would be wise to get into the market sooner rather than later to lock in the best possible deals.
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