As the spring home-buying season begins, many first-time home buyers are finding the market more competitive than expected, necessitating early financial preparation.
As Trulia reported, the number of starter or trade-up homes on the market has decreased over the last four years as home sale prices have increased throughout the country. In its housing inventory report for the first quarter of 2016, Trulia found starter-home inventory dropped the most in the West and the South, while the affordability of starter homes decreased the most in California.
Fewer trade-up homes are becoming available as many first-time home buyers are not able to afford moving on to a bigger or more valuable home. This is creating a gridlock, Trulia noted, and nationally, starter and trade-up home inventory is down more than 40 percent from the amount seen in 2012. Home sale prices are also ticking up in response to the lower inventory. The average closing price for a starter home in 2012 was $116,932. By comparison, in the first quarter of 2016, this average had increased to $154,156.
According to the Trulia study, the low inventory is primarily due to three reasons. The first is many homes, bought at low prices during the recession, have been turned into rentals owned by investors. The second reason is current homeowners who purchased their homes under higher mortgage rates owe more than the home’s current market value, making them unlikely to sell at a loss. However, Trulia said gridlock caused by the lack of affordability in key markets is the most influential factor leading to the shortage of accessible homes for first-time home buyers.
How to Navigate a Tight Market
As The Boston Globe reported, all these factors are adding up to make the current housing market one of the toughest for first-time home buyers, which may continue for a few years. Younger home buyers are particularly affected by a low housing inventory as they often have fewer financial assets and lower incomes. However, while this makes securing your first home daunting, it does not make the task impossible, the Globe noted.
Potential home buyers may experience frustration if they limit their home search to open houses, which are likely to be crowded and impersonal. Time magazine recommended there are smarter moves for first-time home buyers to make when faced with tight inventory. Instead of browsing listing websites or classifieds for homes for sale, try making unsolicited offers on homes before they go on the market. One strategy is to look at rental listings and see if any landlords are interested in selling the property instead of leasing.
Another wise move is to visit your lender and get pre-approval on a loan. A mortgage banker can give you more information about your credit score and exactly what you can afford in your first home. According to Money Magazine, a pre-approval from a lender will help you to move faster on closing on a home and will make the seller feel more confident about you as a buyer.
At The Federal Savings Bank, we understand the importance of owning your own home. Visit our mortgage bankers today to see if you qualify for a mortgage pre-approval that can set you on the path to home ownership.
By Michael Adler
Michael Adler is a Senior VP at The Federal Savings Bank and recently opened up the bank’s new Teaneck office. His office is located at 206 W. Englewood Avenue. He can be reached at 201-225-9301 or via email at: [email protected]. You can look him up at: www.thefederalsavingsbank.com/meyeradler – NMLS#28172.
