First-time homebuyers are faced with two major challenges in the housing market that are keeping them from purchasing a home: scarce inventory and higher home prices.
In more than half of the largest U.S. housing markets, home values are rising quickly among entry-level homes, according to first quarter Zillow Real Estate Market Reports.
This phenomenon is fueled by a devastatingly low supply of homes for sale on the market. Zillow reported that there are 5.9 percent fewer homes for sale in the U.S. than a year ago and 10.4 percent fewer entry-level homes for sale this year compared to last year.
"The findings signal difficult times ahead for first-time homebuyers looking to enter the market. Going into home-shopping season this spring, buyers will find fewer homes in the bottom and middle of the market—the homes most affordable for first-time buyers," the report stated. "The trend also highlights the different experiences buyers are having in the recovering housing market. Buyers looking for the most expensive homes will find slower price growth, a larger selection, and less competition this spring than entry-level buyers who are likely to face stiff competition, bidding wars, and very few homes to choose from."
According to Zillow's data, home values rose 4.8 percent to $186,200, while rents rose 2.6 percent to $1,389. More than a third of the homes available for sale in the largest U.S. housing markets are in the most expensive segment, or the top third of the overall housing stock in the market. Top-tier homes occupy over half the inventory in nine markets.
"It's going to be a tough home-buying market this spring, especially for first-time buyers or even people looking to move up into a slightly more expensive home," said Zillow Chief Economist Dr. Svenja Gudell. "In order to stand out in a competitive market, buyers should get pre-approved for a loan, find an agent who has experience with bidding wars, and consider coming in at the asking price, so the seller knows they're serious."