Lack of Entry-Level Homes Remains a Challenge for the Market
Higher materials costs, declining availability of labor, lot prices, intense demand, and lack of supply have all affected housing affordability leaving a shortage of entry-level homes and affordable options. In July, the median price of a newly-built home was $390,500, 18% higher than a year ago (Deitz). According to the National Association of Realtors, the median home price for an existing single-family home in the second quarter of 2021 was $357,900 (NAR)
Residential demand, however, continues to be supported by low-interest rates, a consumer focus on the importance of housing, and solid demand in lower-density outlying areas (suburbs, small towns, and rural markets) driven, in part, by the Covid-19 pandemic. Small metro suburbs accounted for the fastest growing geographical areas for single-family construction (Murali).
But for many, the high price tags have eliminated the opportunity for homeownership, particularly at the lower end of the market and particularly for people of color. A year ago, 42% of new home sales were priced below $300,000. In July 2021, only 24% of new home sales were priced below $300,000 (Dietz). According to the NAHB/Wells Fargo Housing Opportunity Index, just 56.6% of new and existing homes sold between April and the end of June 2021 were affordable to families earning the U.S. median income ($79,900), the lowest level of affordability since the first quarter of 2012 (HOI).
Supply and availability also remain problematic. We’re currently more than 50% below the historical averages of inventory availability. Over the last two decades, we added more than twice as many people as the number of housing units. And today, we have a only 2-month supply of available inventory—around 1 million homes nationally—the lowest supply since 1982. That means that every home available on the market today would sell out in two months regardless of price.
And that scenario isn’t likely to improve. In addition to the demand from move-up buyers and Baby Boomers, Millenials between 28-30 are approaching the key median homebuying age. The share of millennial homebuyers went from 33% in 2014 to 54% in 2020 (Hepp). Yet the average Millenial buyer only has $8500 in savings to put down. Assuming a 3% downpayment, the average Millenial can afford up to $283,000. That’s more than $100,000 less than the median new home price today and $75,000 less than the median price for an existing home.
In the 1970s, we were building 425,000 affordable homes per year. That number has dwindled to approximately 60,000 affordable units today. The lack of affordable homes is the single biggest challenge, barrier even, to homebuyers. And many buyers are forced to make significant concessions on size, features, location, price, and often have little room for negotiation and repair—IF they are one of the lucky few to have their offer accepted.
Dietz, Robert. “New Home Sales Steady in JULY: Eye on Housing.” Eye On Housing | National Association of Home Builders Discusses Economics and Housing Policy, National Association of Homebuilders, 24 Aug. 2021, eyeonhousing.org/2021/08/new-home-sales-steady-in-july/?_ga=2.249388615.1590965405.1629990174-739720800.1628805833.
Hepp, Selma, et al. “Our Homeownership Moonshot: Building 20 Million Homes by 2030.” NCRC.Org, National Community Reinvestment Coalition, 24 Aug. 2021, www.ncrc.org/our-homeownership-moonshot-building-20-million-homes-by-2030/.
“Housing Opportunity Index (Hoi).” NAHB, NAHB/Wells Fargo, 2021, www.nahb.org/news-and-economics/housing-economics/indices/housing-opportunity-index?_ga=2.91804893.677455196.1628776430-403372675.1628776430.
Murali, Litic. “Suburban Shift for Home Building in Q2 2020: Eye on Housing.” Eye On Housing | National Association of Home Builders Discusses Economics and Housing Policy, National Association of Homebuilding, 1 Sept. 2020, eyeonhousing.org/2020/09/suburban-shift-for-homebuilding-in-q2-2020/.