Rising home prices and a slim supply of starter homes in many areas are making this spring a challenging one for first-time buyers, real estate professionals say.
The typical price of a previously owned home in March was about $250,000, up nearly 6 percent from a year earlier, according to the National Association of Realtors.
Plus, homes sell quickly when they come on the market — especially smaller, lower-priced homes. Seasonal demand is increasing as usual, but buyers are finding that there is a lack of new listings. Homes are going under contract in about a month, the association reported, about four days faster than was typical last year.
“The starter house is nearly missing in some markets,” said Jessica Lautz, the association’s managing director of survey research and communication.
Much new construction is aimed at more affluent buyers. Plus, investors — both professional and amateur — are turning to single-family homes as rental properties to diversify their holdings, creating more competition for traditional buyers when houses come on the market.
Competition for all homes in general was particularly cutthroat in some areas, especially in Western markets like San Francisco and other California cities, along with parts of Texas and Colorado, according to Realtor.com, a listing website. The website also cites Boston as a hot market.
In Colorado Springs, Jay Gupta, a real estate agent, said the market had 1,524 active listings and ended the month with 1,286 sales. Recently, Gupta said, a home was listed for $310,000. Forty people attended a three-hour open house, and the property went under contract to a buyer offering $30,000 over the asking price. The buyer, who was relocating from out of state, apparently grew tired of seeing his offers on other houses get declined, Gupta said.
In addition to daunting bidding wars in some markets, first-time buyers often have trouble coming up with a down payment.
Based on the median home price, a down payment of 20 percent — a longtime rule of thumb — would be more than $50,000. Amassing that much cash can be difficult. The average savings of people who do not own homes was $5,200 in 2016, according to the Realtors association, citing Federal Reserve data.
In reality, however, many home buyers make much smaller down payments. More than half of borrowers made down payments of 6 percent or less in the 12 months ending in November 2017, according to survey data from the association.
The notion that a 20 percent down payment is required is increasingly a “myth,” said Danny Gardner, a senior vice president with Freddie Mac.
Both Freddie Mac and Fannie Mae, as they are known, support home loans to eligible buyers who put down as little as 3 percent. The companies do not directly make home loans.
Freddie Mac said it would soon expand its low-down-payment program to broaden the pool of buyers who can qualify. The updated program will serve borrowers regardless of income.
Fannie Mae was already offering its low-down-payment program to a broad pool of borrowers, said Jonathan Lawless, vice president of product development and affordable housing at Fannie Mae.
Ann Carrns writes for the New York Times.