It's Not a Great Time to Buy a Starter Home

When it comes to the housing market in the United States, there’s a widening gap between conventional wisdom and real estate reality. Take so-called “starter homes,” for example.

In postwar suburban America, the term was used to describe smaller homes that younger people could afford to purchase and live in as they were getting their lives—and their families—established, before buying and settling down somewhere more spacious.

There are plenty of people out there who believe that “starter homes,” as originally conceived, still exist. But for so many would-be first-time homebuyers in 2023, they’re a fantasy, not a reality in most parts of the country. In fact, a new report from Realtor.com found that renting a starter home is cheaper than buying one in all but three major metropolitan areas in the U.S. Here’s what to know.

Why traditional ‘starter homes’ are expensive and in short supply

Many people assume that compact one- and two-bedroom homes are still accessible to those at the beginning of their careers, but they’re no longer the affordable option they once were. There are a few reasons for this.

First, there’s the issue of financing. Mortgage rates are currently higher than they’ve been in more than 22 years, according to Bankrate. That alone makes it harder to afford a home, but having to compete against other buyers who are able to pay cash is even worse.

According to a July 28, 2023 tweet from Redfin, 37% of U.S. starter homes were purchased in cash in May. “That’s in part because real estate investors are buying up a sizable chunk of today’s affordable homes,” the tweet reads. So, as an article from The Ascent points out, this means first-time homebuyers have to compete against investors with deep pockets who are looking for houses to rent or flip.

And while there’s clearly a demand for these smaller, more affordable homes, they’re in short supply. In July 2023, total housing inventory was down 13.6% from the previous year, according to data from the National Association of Realtors (NAR).

“There are simply not enough homes for sale,” NAR Chief Economist Lawrence Yun said in a statement. “The market can easily absorb a doubling of inventory.”

And we’re unlikely to see housing costs to drop anytime soon. NAR expects housing prices to increase by 2.6% in 2024, while Zillow predicts that home values will increase 4.9% over the course of the next year.

from Lifehacker https://ift.tt/zbiq9vw

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