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Starter home scarcity a problem for first-timers

March 23, 2018

Over the past year or so, the number of buyers getting into the housing market has grown significantly, especially among young shoppers who are looking to buy for the first time. However, one of the common traits among most generations of younger shoppers is that they often don't have the ability to buy big or even mid-sized houses, and as a consequence hone in on appropriately named "starter homes."

However, because of so much demand - not just in the past year, but stretching back farther into the economic recovery - for these lower-priced houses, the national inventory for such properties has dwindled sharply while other, larger houses have become more common, according to new research from Trulia. Despite concerns about the size of the national housing inventory overall, it actually grew 3.3 percent on an annual basis at the end of the first quarter, but that was due to a 13.3 percent jump in the largest, most expensive homes on the market.

"Starter home inventory fell 14.2%."

Meanwhile, starter home inventory fell 14.2 percent over the same period, and the median list price for them increased 9.6 percent, the report said. As a consequence of these market conditions, starter homes made up just 21.5 percent of all homes on sale, compared to 22.9 percent for mid-sized "trade-up" houses and a sizable 55.6 percent for premium properties.

An emerging trend
To that end, it seems as though many starter homes are now being purchased by consumers with little to no interest in actually selling them in short order, effectively keeping them off the market for longer than they might be under normal market conditions, the report said. Instead, many of the starter homes that still linger on today's market are considered fixer-uppers, rather than move-in ready.

Furthermore, there are many major metro areas where low-priced homes are virtually non-existent simply because of how much demand there is for properties of any size in these busier markets, the report said. Combine that with the fact that builders continue to face headwinds when it comes to being able to put up smaller, more affordable houses due to labor shortages and issues with building materials, and experts largely agree the market is incredibly difficult to navigate for bargain hunters.

"First-time home buyers face a perfect storm this spring," said Trulia Senior Economist Cheryl Young. "Affordable, move-in ready starter homes have become harder to find amid rising home prices and mortgage rates. While new home construction hit a 10-year high in 2017, these units have not translated into starter home inventory just yet."

An attempt to help
The good news for would-be shoppers looking to get into the market at a reasonable price point is that many states and municipalities now recognize the market difficulties first-time buyers face, according to the Daily Free Press. In Massachusetts - one of the nation's pricier states for homebuying - a new program from the quasi-public homeownership help organization MassHousing is aimed at helping first-time buyers with down payment assistance by providing them up with the lesser of either 3 percent of the down payment price or $12,000 in funding.

"A new program is aimed at helping first-time buyers."

That funding will be provided in the form of a secondary loan that will likewise have to be paid back, but will also not require any cash down payment, unlike their primary mortgages, the report said. In particular, this issue seems to be primarily aimed at recent college graduates whose ability to build sizable down payments is likely weighed down by student loan debt. Paul McMorrow, director of communications and policy at MassHousing, told the newspaper that the Bay State has suffered from some significant inventory shortages which have only served to drive up housing costs - for both purchases and rentals - to the point that many people are being priced out.

Legal changes coming?
Meanwhile, just north of Massachusetts in the Granite State, some New Hampshire lawmakers are considering adding a tax break for first-time homebuyers to encourage more young people to get into the market, according to the New Hampshire Business Review. Senate Bill 301, which has not yet been signed into law due to concerns about the legislation in the state's House of Representatives, would create a two-year tax break for first-time buyers to reduce the real estate transfer tax by one-third - from 75 cents per $100 of home value to 50 cents per $100 - specifically on houses priced at less than $300,000.

New Hampshire state Reps. largely believe the language of the bill is perhaps a bit too restrictive in terms of who it benefits, and would probably like to see the language extended to people with certain financial limitations in particular, the report said. Others are concerned about the overall cost to the state in terms of lost tax revenues.

When consumers are looking to make a home purchase of any kind, it's vital that they do all they can to find any assistance they can to reduce their buying costs. There are often several programs or benefits to which they may have access without realizing it, which can potentially reduce their homebuying costs by a significant amount. That, in turn, could help them save tens of thousands of dollars over the life of a loan.




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