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Shortage of starter homes signals pain for first-time buyers

There’s a widening gap between real estate listings and searches that underscores the difficulty homebuyers face in finding the right house at the right price, according to Trulia’s latest research published Wednesday.

In the fourth quarter of 2016, the average “market mismatch score” across the starter, trade-up, and premium home price tiers rose 1.8 percentage points to 7.4 percentage points. (The price ranges that Trulia used are unique to each metro area. Starter homes are defined as the bottom third of the market based on home values, followed by trade-up homes as the middle third, and premium homes as the upper third. A “starter” home in San Francisco is anything cheaper than $904,086, but in Akron, Ohio, it’s anything below $94,713.)

Here’s the crux of the mismatch: Most buyers were looking for starter and trade-up homes in Q4, but most listings they saw were for premium-priced homes.

Bloomberg

“In most major metros, there are disproportionately more house hunters who are searching for starter and trade-up homes than what is actually available on the market,” says Felipe Chacon, Trulia housing data analyst.

Market mismatch refers to Trulia’s measure of search interest vs. available listings. “It’s the difference between the price point where the bulk of searches occur and the average price point of listed properties,” says Trulia. Here’s an example: If 60% of buyers are searching for starter homes but only 40% of listings are starter homes, Trulia’s market mismatch score for starter homes would be 20.

For its second mismatch report, Trulia took a deeper look at what types of buyers in particular are feeling the most squeezed. The real estate site also classified listings and searches into three categories: starter, trade-up, and premium price houses, and compared them to see which markets have the most significant mismatches.

Here’s what Trulia found:

There aren’t enough starter and trade-up homes

This misalignment is a sign of unbalanced markets. Trulia found a 5.7 and 5.3 percentage-point shortfall of listings relative to search interest in the starter and trade-up price categories, and an 11 percentage-point surplus of listings vs. search interest in the premium price category, averaging out to 7.4 percentage points.

There are a lot of first-time homebuyers out there and not enough inventory

Nearly 27% of all real estate searches were for starter homes while only 21.2% of listings were at that price level.

There’s a similar shortfall in the trade-up home category: 30% of all searches are for these kinds of homes, with just 24.3% of listings. Which essentially means too many buyers shopping for lower-priced properties are facing challenges finding affordable homes.

Texas and North Carolina: Starter homes are in shortest supply here

Buyers in the market for starter homes in Raleigh, N.C., and Colorado Springs, Colo., are feeling the most pinched with 14.0 and 13.1 percentage point gaps between search volume and listing availability, according to Trulia. For instance, in Raleigh, 24% of all searches are for starter homes — but just 10% of all listings are for starter homes. Hence the 14 percentage point gap.

Dallas, meanwhile, has the highest average mismatch (across all three categories) at 17.5 percentage points. For the starter home category, searches in this city make up 18.1% of all search traffic but are chasing only 6.2% of listings, Trulia says. (Trulia explains: Like the other cities in this list, with the exception of Houston, during the past two years Dallas has seen inventories drop at a faster rate than the national average, contributing to higher market mismatch.)

Philly: a bright spot for starter homes

One metro is a bright spot for starter home supply: Philadelphia. The city has an 11.6 percentage point gap of listings compared with searches. It also has a 13.2 percentage point shortfall in listings for premium-priced homes compared with searches for those homes.

So where are the lucky homebuyers who are seeing the most in-sync matches between searches and listings? That’ll be Honolulu and Bakersfield, Calif., with super-low mismatch scores of 2.4% and 1.4%, respectively.

Trulia