Market Mismatch Leaves Few Options for Starter Homes

Most potential home buyers are looking for starter homes, but a Market Mismatch Report by Trulia has found that these homes are becoming more difficult to find, particularly in Texas, Florida, and North Carolina. The report examined market mismatch, which is interest versus available listings, in a side-by-side comparison of inventories.

The mismatch score was based on all for-sale listings on Trulia in the largest 100 U.S. metros. Site traffic was matched to the property and the price. Price categories were based on a distribution curve made for each geographic. Listings price determined which price category the home fell into: starter, trade-up, or premium. Depending on the price and the number of days a house was listed, the number of searches it had, and the price, market mismatch percentage points were determined.  

The report found that Premium homes are at a surplus of 11 percentage-points nationally, while start-up and trade-up homes shortfall search interest by 5.7 and 5.3 percentage points each. This market mismatch has widened since Q4 of 2014 and indicates that buyers and sellers are drifting apart on prices.

The competition for starter homes has ramped up with 26.9 percent of searches looking for 21.2 percent of listings. Trade-up homes similarly show a higher demand than supply with 30 percent of searches chasing 24.3 percent of listings. Not all markets feel the pinch equally however. Raleigh, North Carolina, and Colorado Springs, Colorado, have the largest gap between search volume and availability with a 14.0 and 13.1 percentage point market mismatch. Philadelphia on the other hand has a surplus of starter homes, 11.6 percentage points.

A larger perspective of the report showed just how prevalent market mismatch was. “During the most recent quarter, of the largest 100 metros, 75 had a larger percentage of search interest in the starter homes category than percentage of listings that were actually starter homes. Ninety-two metros had a listing shortfall relative to search interest in the trade-up category. Meanwhile, only 11 of the largest 100 metros saw a larger percentage of search interest fall in the premium category compared with the percentage of listings in that same tier.”

Markets with low premium home inventory typically share a theme of slower population homes, population declines, and more low quality housing. Detroit and Philadelphia are the only two markets with a surplus of listings in the starter and trade-up categories.

Although inventories are declining throughout much of the country, the impact of the decline impacts local shoppers differently. For example, declines in start-up or trade-up homes in Philadelphia won’t impact shoppers much since most are looking for premium homes. But places like Houston and Dallas, interest in starter homes is met with too many premium options. The market disparity is the largest it has been in two years and it means that Americans are searching for homes in a market with dwindling options while sellers for premium homes will be left waiting longer to sell.

Read the original report at Trulia.com.