Gap grows between supply of and demand for entry-level homes

Dive Brief:

The rise in home prices nationwide is putting homeownership further out of reach for many potential buyers, particularly first-timers, as inventory of lower-priced homes remains tight, according to The Wall Street Journal, citing figures from residential real estate website Trulia.
In the fourth quarter, entry-level homes accounted for 27% of online home searches while just 21% of listings fell in that category. Conversely, 55% of home listings during the period were among higher-priced tiers while 44% of searches fell into this segment.
The gap between the number of entry-level homes on the market and the number of searches for those kinds of properties has risen from 4.5 percentage points in the fourth quarter of 2014 to 5.7 percentage points currently.

Dive Insight:

The housing market's affordability gap continues to widen as lower-priced inventory fails to keep pace with the flow of demand. Builders cite a stringent regulatory environment, along with lot and labor shortages, as reason for the slow burn on their ability to bring more properties online.

Meanwhile, many homeowners who bought at the market’s peak have been caught in negative equity on their mortgages following the collapse. Their woes are slowly being alleviated. Without an apparent bubble, consistent price growth has helped the market recover from the last cycle, according to David Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices. Home prices in November, the latest available from the S&P Core Logic Case-Shiller U.S. National Home Price Index, were within 0.3% of the market’s June 2006 peak.

There are signs that residential construction activity is picking up. Housing starts surged 11.3% from November to December led by a strong pendulum swing from multifamily to compensate for a modest drop-off in single-family construction for the period; both categories were up year-over-year.

Demand is strongest in the entry-level category, and builders are responding in tune. D.R. Horton, Meritage Homes and Toll Brothers are among the big builders to unveil home lines in the last few years marketed specifically at new buyers in this category.

Atlanta-based Ashton Woods, one of the country’s top 20 builders last year, recently announced a line of new-home communities featuring properties with smaller footprints and lower monthly payments. The company is targeting millennials who are currently renting.

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