The FINANCIAL -- On December 14, Trulia, a home and neighborhood resource for homebuyers and renters, released the findings from its quarterly Trulia Inventory and Price Watch.
This quarter's report found that while starter and trade-up home inventory decreased again at double-digit rates, premium homes saw the biggest declines in more than four years, at 5.9%. In addition, homes are now the most unaffordable since Trulia started keeping track in 2012.
U.S. Housing Inventory Decreases 10.5% in the Fourth Quarter
In the fourth quarter, U.S. housing inventory saw its steepest fall since 2013, dropping 10.5% from this time last year, with the biggest drop across housing segments occurring among starter homes. While starter and trade-up homes took another dip this quarter, premium homes also saw an uncharacteristically large drop of 5.9% from this time last year. Metros that led the charge in the premium dip, included San Jose, Calif., Salt Lake City and Rochester, N.Y.
Despite Sharp Fall, Premium Homes Still Occupy Larger Share of the Market
Amid the biggest year-over-year drop in inventory, premium homes now occupy the largest percent of the market than any quarter since 2012. Adding to the obstacles for first-time buyers, premium homes now account for 53.1% of all available inventory. Since this time last year, the percentage share of the market of premium homes increased 1.9 percentage points. This compares to no change in trade-up homes and a 1.9 percentage-point drop in starter homes. Among the 100 largest U.S. metros, eight of the top 10 markets that saw the largest fall in premium inventory are still seeing an increase in the share of premium homes on the market. While premium homebuyers are seeing historic dips, it is starter home buyers that are feeling the impact.
Starter Homebuyers Continue Feeling Unaffordability Pinch
Paired with falling inventory and an increasing share of premium homes, declines in affordability plagued homebuyers, specifically those looking for starter homes. Across the national housing market and across all segments, homes are the most unaffordable they have been since 2012 and today, first-time homebuyers will need to spend 39.8% – nearly a third more than the amount recommended – of their monthly income to buy a starter home – a 1.7 percentage point increase from last year. Comparatively, trade-up and premium homebuyers will need to spend 25.8% (up 0.6 percentage points from the same period a year ago) and 14.0% (up 0.3 percentage points from last year) of their income to buy a home, respectively.
QUOTES FROM TRULIA'S CHIEF ECONOMIST RALPH MCLAUGHLIN:
"While the inventory crunch continues, I'm cautiously optimistic that 2018 will be a year for inventory rebound. Not only is American optimism about selling homes at levels not seen since 2014, 16% of homeowners plan to sell a home in the next two years. If we see them follow through, there may finally be an uptick in inventory."
"While the number of premium homes on the market have seen a sharp fall, they continue to make up a larger share of the for-sale market, which spells trouble for first-time homebuyers. Coupled with record-low inventory, saving enough money for a down payment will continue to be their biggest obstacle to homeownership."