In most markets, the lack of inventory for starter homes causes prices to rise, however, there are some notable exceptions to this rule, according to a recent report by Trulia.
While the housing market has improved in the last few years, lack of inventory, high home prices and a shortage of inventory continue to plague homebuyers. In fact, as far as inventory goes, there is still room for two more years of expansion, said Managing Director Robert Curran in a webcast for Fitch Ratings. And In many markets, such as Portland, Oregon, Dallas, Texas, and Colorado Springs, Colorado, a decrease in the number of starter homes led to double-digit price increases in the last year, according to the report.
That being said, home prices are not just determined by supply, but also by demand. According to Trulia’s report, from April 2015 to April 2016, in 20 of the 74 markets where starter home inventory dropped, demand has fallen at an even faster pace, causing home prices to drop, too.
Some of these markets include places such as Columbia and Charleston, South Carolina, where home inventory fell 20% annually in the past year, but home prices also fell by 0.8% and 5% respectively, according to the report.
These are just two examples, but they are not alone, the report states. Eighteen other metros experienced the same price and inventory drops including New York City, Kansas City and the Montgomery County area of Pennsylvania.
On the other hand, the falling inventory of trade-up and premium homes is taking its toll even in these metros. Of the 78 markets where trade-up home inventory has fallen since April 2015, only five saw a decrease in prices, according to the report.
Also, of the 70 markets that saw a loss in inventory of premium homes, home prices for these homes fell in only one market: Syracuse, New York. This is a stark contrast to the 20 of 74 markets where home prices of starter homes dropped while inventory also decreased.
What does this mean for the market? While inventory for starter homes dropped the most, a lack of inventory is most problematic for trade-up and premium homes, according to the report.