We often hear about the burden of low inventory, but who does it actually affect and how exactly does it effect them? Those are the answers Trulia Chief Economist Ralph McLaughlin sought to answer in the latest Trulia Inventory and Price Watch report.
According to McLaughlin’s findings, the 20 percent dip in for-sale listings over the past five years mainly impacts first-time buyers searching for a starter home and current homeowners looking for a trade-up property.
In the second quarter of 2017, United States home inventory dropped 8.9 percent year-over-year — the ninth consecutive quarter of decline. When you drill down into various home segments, the picture looks even bleaker, especially for buyers with a limited budget.
The number of for-sale starter and trade-up homes on the market has declined 15.6 percent and 13.1 percent, respectively. That’s about 10 to 12 percentage points more than the decline seen for premium homes, which hovers at 3.9 percent.
Lastly, the market share of starter and trade-up homes on the market both dropped to 22.1 percent while the share of premium homes rose 55.8 percent.
These declines in the number of homes for sale and market share results in buyers having to shell out more of their income towards a home purchase.
First-time buyers looking for a median-priced starter home ($169,129) will have to spend 3.1 percent more although they already spend 39.1 percent of their income on home costs. Buyers looking for a median-priced trade-up home ($293,799) are currently spending 26 percent of their income toward home costs and are expected to shell out an additional 1.7 percent.
Again, buyers looking for a median-priced premium home ($626,535) come out on the “winning” side of the inventory war. Buyers in this bracket spend 14.3 percent of their income on home costs and are expected to spend 0.9 percent more this year.
Low inventory and high demand also have another impact beyond booming home prices — they’re making the housing market move in warp speed.
In 2012, 57 percent of homes were still on the market after two months. Today, a little under half (47 percent) are on the market after the 60-day mark. Of course, this changes from market to market, and some are experiencing faster or slower movement than the national average.
For example, in San Jose and Oakland, California, only 20 percent of homes are on the market after two months. Meanwhile, buyers in Colorado Springs, Denver, and Columbus have a bit more time to weigh their options as 31 to 33 percent of homes in those areas are still on the market after 60 days.
McLaughlin says buyers can’t do much when it comes to battling low inventory and affordability issues, but with a little open-mindedness and a smart agent by their side, they can find the “almost perfect” home they’re vying for by having their finances in order before contacting an agent, staying flexible on closing dates and keeping those “ugly duckling” homes on the list of possibilities.
“Instead of trying to strike quickly as soon as a home comes onto the market, buyers might want to consider looking for homes that have sat on the market for a while and figuring out why,” said McLaughlin.
“Though the reasons are more likely to be a deal-killer than not (needs a new foundation, roof, electrical, etc.), all it takes is just one that isn’t to find success.”