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Affordability, Inventory, and the Entry-Level Homebuyer

Rising home prices and affordability concerns have been two of the major themes of the 2019 housing market. CoreLogic Chief Economist Frank Nothaft discussed the primary reasons why entry-level homebuyers are having issues finding affordable housing at a recent industry event. 

Nothaft said that while home prices have been steadily rising for many years, CoreLogic has found that lower-priced homes have appreciated more than higher-priced homes. 

CoreLogic states that since May 2018, prices of homes more than 25% above the average have risen 3%, compared to 5.5% for homes priced more than 25% below the median. 

“With prices rising, many would-be homebuyers are scrambling to find homes within their price range. This puts higher demand on affordable homes and raises their prices,” CoreLogic states.  

Making matters worse is the increased activity of investors looking to purchase lower-priced homes as investments. CoreLogic reports that the investor share of entry-level home purchases has increased over the past two decades from 10.7% between 1999-2003 to 19.2% from 2015-2019. 

The increased demand for affordable homes has also caused the supply to become even smaller. 

"New construction, while picking up gradually over the last few years, is still well below what it was prior to the housing boom,” Nothaft said. 

He added that the current inventory for homes is the tightest in the lowest-priced tiers, especially for those between 50 and 100% of the median-home price. 

Additionally, modern home builders prefer building expensive homes over affordable homes, CoreLogic says. Two-percent of entry-level home are new sales, compared to 12% of premium homes—less than half of what it was two decades ago. 

"I don't see that changing any time soon unless we find ways to reduce the cost of producing or delivering lower-priced homes into the marketplace and reducing some of the regulatory costs,” Nothaft said. 

CoreLogic’s latest Home Price Index (HPI) found that home prices rose nationally 3.6% in August and are expected to increase 5.8% over the next year. 

August’s HPI gain was down, though, from August 2018’s gain of 5.5% and was a slight increase of the prior month’s increase of 3.3%. CoreLogic states home prices have been increasing between 3.2% to 3.6% for the past six months, “indicating that the range of home price growth has plateaued.” 

The lowest price housing tier saw home prices rise 5.5% year-over-year in August 2019, compared to 4.5% growth for the low-to middle-price tier and 3.9% for the middle-to moderate-price tier. Prices for higher priced homes rose 3.2%. 

About Author: Mike Albanese

A graduate of the University of Alabama, Mike Albanese has worked for news publications since 2011 in Texas and Colorado. He has built a portfolio of more than 1,000 articles, covering city government, police and crime, business, sports, and is experienced in crafting engaging features and enterprise pieces. He spent time as the sports editor for the "Pilot Point Post-Signal," and has covered the DFW Metroplex for several years. He has also assisted with sports coverage and editing duties with the "Dallas Morning News" and "Denton Record-Chronicle" over the past several years.

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