Millennials Face Another Housing Market Challenge, As Supply Of Starter Homes Dries Up

Millennials Face Another Housing Market Challenge, As Supply Of Starter Homes Dries Up

Not only have many millennials been priced out of the home market, as we have been documenting over the last few months, but now a supply constraint of starter homes is feeling like yet another roadblock. Starter homes are generally homes with smaller footprints and lower selling prices that allow first time buyers to enter the market.

27 year old Samantha Berrafato told the Wall Street Journal: “It just feels like every little thing keeps getting put on hold. I’ve been putting having kids on hold, and I had put having a wedding on hold because we just couldn’t afford it. Now it’s like [that with] the house buying.”

Berrafato and her husband started looking for a home about three months ago and only found one after including fixer-uppers and foreclosures to their search. 

The Journal noted that supply of “entry-level housing”, defined as homes under 1,400 square feet, is at a five decade low. There is also rising prices and broad competition to tend with. 

Ed Pinto, director of the AEI Housing Center at the American Enterprise Institute, said: “There just aren’t enough of these homes to fulfill the demand. It’s creating this ‘Great American Land Rush,’ as I call it. People are moving around and there’s tremendous demand, but the inventory is down.”

Samantha Berrafato and her husband

Additionally, the median age of the first time home buyer has risen to 33 years old, from 30 years old a decade ago, according to the National Association of Realtors. 

Sam Khater, chief economist and head of Freddie Mac’s Economic and Housing Research division, said: “This is a big deal. We need to think about how we talk about affordable housing, because for most people, when they hear affordable housing, there’s an instant negative reaction. They think ‘low-income,’ right? The issue now is these fissures have not just invaded the middle class. It’s now going up into the upper-middle-income strata.”

Robert Dietz, chief economist at the National Association of Home Builders, added: “It’s been the hardest kind of home to build over the last five, six or seven years.”

35 year old Matthew Libassi is also looking for a home with a budget of about $500,000. He told The Journal: “We don’t have a crazy list of demands. But the stuff that we’re seeing is just major overhauls and with putting all the money that we have in, it’s just not doable.”

Pinto concluded by stating that he believed many buyers were going to move outside of metro areas: “We think this is going to continue for some time, for years. Bottom line is, if you’re in an area like Phoenix or Raleigh or Austin, the people who are the current residents who would normally want to get on the first rung of that ladder—they’re going to have a much harder time.”

Recall, we wrote back in May that millennials were resorting to “fixer-upper” homes because they were being priced out of the market. 

The scorching hot price of housing had forced millennials to now turn to fixer-uppers as a “more affordable solution” for homes to buy, we wrote at the time. According to Bank of America Research’s sixth annual millennial home improvement survey, 82% of millennials had said they were more likely to buy a fixer-upper than a newly built home.

That report noted that the U.S. has been underbuilding homes since the Great Recession, pushing millennials toward their “second housing crisis in 12 years”. Demand from millennials has “only exacerbated the shrinking inventory” and “led to cutthroat competition rife with bidding wars”, Business Insider noted at the time.

Finally, we pointed out the growing number of housing-related Instagram pages like Cheap Old Houses, which focuses on historic homes selling for no more than $100,000 that offer fixer-upper opportunities. The account has grown to 1.5 million followers from 750,000 early last year. 

Tyler Durden
Wed, 07/07/2021 – 21:45

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