First-Time Buyers Face Lack of Inventory and Higher Prices

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Entry-level homes are rising in value the fastest in most large U.S. housing markets, making it tough for first-time buyers to enter the market this spring

zillow-logoHome values are rising the fastest among entry-level homes in more than half of the largest U.S. housing markets, according to first quarter Zillow® Real Estate Market Reports.i Rising home values in this segment of the market can be attributed to a lack of supply, with 10 percent fewer homes for sale this year compared to last.

The median value of entry-level homes, those in the bottom thirdii of the market, rose the most over the past year in Denver, up 20 percent, followed by Portland and Dallas. There are 13 percent fewer entry-level homes available in Denver than there were a year ago. The number of entry-level homes available declined the most in Portland. There are 40 percent fewer entry-level homes available in Portland than there were a year ago.

The findings signal difficult times ahead for first-time homebuyers looking to enter the market. Going into home-shopping season this spring, buyers will find fewer homes in the bottom and middle of the market — the homes most affordable for first-time buyers. The trend also highlights the different experiences buyers are having in the recovering housing market. Buyers looking for the most expensive homes will find slower price growth, a larger selection, and less competition this spring than entry-level buyers who are likely to face stiff competition, bidding wars, and very few homes to choose from.

“It’s going to be a tough home-buying market this spring, especially for first-time buyers or even people looking to move up into a slightly more expensive home,” said Zillow Chief Economist Dr. Svenja Gudell.  “In order to stand out in a competitive market, buyers should get pre-approved for a loan, find an agent who has experience with bidding wars, and consider coming in at the asking price, so the seller knows they’re serious.”

In all of the largest U.S. housing markets, more than a third of the homes available for sale are in the most expensive segment — in the top third of the overall housing stock in the market. In nine markets, top-tier homes make up more than half of the inventory.

The most expensive homes on the market are more likely to have a price cut, a signal that there’s less demand for top-tier homes. The share of top-tier listings with a price cut has increased 1.6 percentage points over the past year.

Metropolitan
Area

First Quarter
2016 Zillow
Home Value
Index (ZHVI)

Bottom-
Tier
Percent
Home
Value
Increase

Bottom-
Tier
Percent
Inventory
Change

Middle-
Tier
Percent
Home
Value
Increase

Middle-
Tier
Percent
Inventory
Change

Top-Tier
Percent
Home
Value
Increase

Top-Tier
Percent
Inventory
Change

United States

$        186,200

n/a

-10.4%

n/a

-10.4%

n/a

-1.9%

New York, NY

$        384,100

-0.8%

-9.0%

1.8%

-3.6%

3.5%

4.7%

Los Angeles-Long Beach-Anaheim, CA

$        565,400

6.2%

-26.3%

6.2%

-11.3%

8.1%

1.3%

Chicago, IL

$        193,800

0.7%

-14.2%

3.1%

-10.5%

1.0%

2.0%

Dallas-Fort Worth, TX

$        182,100

14.7%

-27.5%

13.0%

-32.5%

11.2%

-10.1%

Philadelphia, PA

$        204,400

0.9%

-2.0%

1.9%

-6.4%

1.3%

0.5%

Houston, TX

$        172,100

7.7%

 n/a

6.4%

 n/a

2.8%

 n/a

Washington, DC

$        364,100

2.8%

-10.8%

2.0%

-0.7%

1.0%

2.7%

Miami-Fort Lauderdale, FL

$        230,600

11.7%

-3.6%

10.5%

7.8%

6.3%

15.4%

Atlanta, GA

$        163,000

7.3%

-11.5%

6.3%

-11.9%

5.5%

1.3%

Boston, MA

$        387,400

3.2%

-13.1%

4.9%

-4.8%

4.5%

14.6%

San Francisco, CA

$        806,600

11.0%

-17.7%

11.5%

-6.7%

12.1%

1.7%

Detroit, MI

$        123,100

-3.2%

2.0%

6.4%

-20.6%

2.8%

-3.6%

Riverside, CA

$        304,200

10.0%

-3.8%

6.9%

-11.8%

2.7%

1.7%

Phoenix, AZ

$        219,200

11.2%

-28.5%

8.4%

-11.6%

4.2%

-5.3%

Seattle, WA

$        382,700

12.6%

-32.4%

11.7%

-24.4%

10.7%

-16.8%

Minneapolis-St Paul, MN

$        219,400

5.2%

-7.9%

4.5%

-12.8%

2.1%

4.2%

San Diego, CA

$        506,100

6.0%

-25.5%

5.7%

2.3%

5.2%

3.9%

St. Louis, MO

$        141,900

2.3%

-3.0%

5.5%

-10.9%

5.4%

-6.6%

Tampa, FL

$        163,600

10.3%

-28.1%

8.9%

-20.4%

6.2%

-12.4%

Baltimore, MD

$        244,800

1.3%

-3.9%

1.5%

-3.9%

0.6%

-3.2%

Denver, CO

$        333,500

20.3%

-12.7%

15.7%

5.4%

10.6%

-12.7%

Pittsburgh, PA

$        126,700

2.9%

8.6%

1.8%

1.7%

3.0%

9.3%

Portland, OR

$        322,000

16.2%

-39.5%

14.8%

-38.7%

13.5%

-19.7%

Charlotte, NC

$        159,800

4.3%

-34.7%

5.1%

-34.5%

4.4%

-16.6%

Sacramento, CA

$        339,700

13.0%

-22.3%

8.7%

-21.2%

7.1%

-8.6%

San Antonio, TX

$        150,200

8.2%

 n/a

6.7%

 n/a

4.5%

 n/a

Orlando, FL

$        184,100

7.9%

-23.1%

7.9%

-16.0%

4.7%

-4.8%

Cincinnati, OH

$        143,400

4.0%

-18.2%

3.9%

-20.0%

2.9%

-9.1%

Cleveland, OH

$        125,500

-1.3%

-7.9%

2.5%

-11.0%

2.2%

0.8%

Las Vegas, NV

$        203,200

9.1%

-11.1%

9.2%

-8.3%

5.8%

6.8%

Columbus, OH

$        154,600

4.8%

-24.1%

5.7%

-13.7%

4.2%

-3.0%

Indianapolis, IN

$        130,200

2.9%

-8.7%

2.7%

-22.4%

3.7%

-11.8%

San Jose, CA

$        956,500

10.5%

-14.2%

12.6%

1.5%

12.1%

7.5%

Austin, TX

$        247,500

10.1%

 n/a

8.7%

 n/a

6.8%

 n/a

Virginia Beach, VA

$        210,900

0.2%

1.1%

1.1%

2.4%

1.1%

0.0%

Source: Zillow