Tight Supply Stymies First-Time Home Buyers

Unemployment and interest rates are near record lows just as home prices have plateaued, which should be fabulous news for the real estate market, but instead of heating up, transactions are cooling off.

First-time home buyers would love to put their money down, but there just aren’t enough entry-level homes available, even in the new home market, because of land and labor shortages and rising material costs.

The supply tightness has been compounded by retirees “aging in place” and Baby Boomers content to make additions to their current homes, rather than moving, analysts said.

There were 1.89 million previously owned homes on the market in July, down from 1.92 million in June and 1.6% from July 2018, the National Association of Realtors said on Wednesday.

On the other hand, starts on new single-family homes edged up 1.3% in July to an annualized rate of 876,000 units in July, the fastest pace in six months, the Commerce Department said last week.

First-time buyers bought 559,000 single-family homes in the second quarter, down 4% from a year ago, a report from Genworth Mortgage Insurance released on Wednesday showed.

Weaker first-time home sales came at a time while the broader market has recovered a bit from the downdraft in late 2018.

Genworth chief economist Tian Liu said in the report:

“This represents a shift in housing market dynamic dating back to 2012. For the first time, the year-over-year growth rate in home sales to first-time homebuyers underperformed the overall single-family housing market, which was down 2 percent year-over-year.”

The mild pickup in wage growth, now at a 3% annual pace, should help buyers afford homes, and falling interest rates should also be a boon.  The interest rates on conventional 30-year mortgages, or those with loan balances of $484,350 or less, averaged 3.90% in the week ended Aug. 16. This was the lowest reading since November 2016 and down from 4.81% a year earlier.

Even as the costs to acquire a home have fallen somewhat, the lack of homes for sale will persist as a major impediment for first-time buyers to achieve their “American Dream.”

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