MortgageReal Estate

Will homebuilders fill the void in housing for first-time buyers?

The new top hurdle for entry-level buyers

The ability to save for a down payment historically ranks as the biggest hurdle for first-time homebuyers, until now. According to a new housing report from Fitch Ratings, there’s a new problem that’s creating an even bigger roadblock for entry-level buyers — inventory shortages.

The report said that the current supply of homes for sale is 4.7 months for both new and existing homes.

This doesn’t even scratch the low end of what is considered normal, which is about a five-and-a-half to six months supply. The supply is even less for entry-level homes.

On the positive side, the report stated that major public builders, such as DR Horton, M.D.C. Holdings and Meritage Homes have publicly indicated that they are seeking to more heavily serve this customer demographic.

But when it comes to business and making a profit, building for Millennials doesn’t have the biggest draw financially.

According to the report, first-time/entry-level homebuyers currently represent about 32% of the housing market (30% for all of 2015), which is well short of the 40% average of the past.

As a result, as TIME journalist Denver Nicks recently explained, there is now the problem of which gets solved first: Millennials move faster into houses than properties become available, or builders start creating more inventory in hopes Millennials will buy.

Nicks said, “It’s a chicken-or-the-egg situation. Are builders not catering to first-time homebuyers because the nation’s young adults aren’t likely to be purchasing? Or are young adults unlikely to be buying partly because there are relatively few homes that match their needs?"

For now, the future looks promising. The latest new home sales report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau shows that sales were up.

“So far new home sales have declined each month thus far in 2016, however are now up a whopping 24% from last April. This bodes well for homebuyers as Zillow shows that inventory is still down 3.4% from last year and less expensive homes are even less available," Zillow Chief Economist Svenja Gudell.

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