First-time home buyers face higher prices in a sellers’ market.
Potential first-time home owners are finding their pathway to ownership blocked by surges in the price of starter homes in some metropolitan areas. With some mortgage costs on pricier first-time homes exceeding 100% of median starter income, certain markets hold little promise for all but those in higher earnings brackets.
As always, home pricing varies dramatically based on geographical area. The median price of a starter home in San Francisco, for example, is $714,000, according to an analysis conducted by Trulia. In San Jose, first-time buyers will find starter homes available with a median price of $585,713. By contrast, Portland, Ore., starter homes have a median price of $209,675 while the median price in Washington, D.C., is $199,950.
Prices have surged in some markets in just the past few years. In the Oakland metropolitan area, for example, median list prices for starter homes rose 104% between 2012 and the start of 2016. In the same period, prices in Denver increased by 78% while Portland saw a 50% spike.
A number of factors are contributing to the surge in pricing for standard two-bedroom, one-bathroom starter homes. These properties, once considered initial investments toward eventual trade-ups, are a hot commodity at present.
The number of available starter homes in the country’s largest 100 markets has dropped by about 44% since 2012, according to Ralph McLaughlin, chief economist for online real estate site Trulia. The shrinking inventory issue is compounded by the fact many starter homes were snatched up by investors after the housing crash for conversion into rentals. Further complicating matters, McLaughlin told The Washington Post, is that many starter home owners remain upside down in their mortgages and are simply unable to sell.
In some markets, too, the rungs of the housing ladder are widening. That means people in mid-tier homes are seeing the prices of high-end homes soar. They’re finding it necessary to stay put in their properties, essentially shrinking upward mobility prospects for starter-home owners in the process.
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Some Markets Still Offer Promise
While buyers in some markets face a battle in finding starter properties that are affordable, there are places in the country where buying is still within reach. Markets such as Birmingham, Ala., Kansas City, Mo., Columbia, S.C., and Toledo, Ohio, still offer affordability, according to Trulia.
Those looking to buy may not be able to name their price in their market of choice, but they can take some control over the prospect. These tips can help guide buyers as they seek out their first home purchases:
- Line up the money first – Make sure homeownership really fits into the budget. Make sure to retain some savings and work to secure financing in advance. Preapprovals not only help with moving fast once a property is found, they can prove crucial for guiding a search by setting its ultimate parameter – the price.
- Focus on what’s important – Before searching for properties, make sure to have a basic outline of what’s important in mind. When reviewing available options in the preset price range, look beyond paint colors and other cosmetics. Understanding that no house will ever be 100% perfect, draw the line in the sand on features that are must haves, such as being within a specific school district, fitting a particular budget or being on the water, and go from there. Colors, the number of bedrooms and even the countertops can all be changed later.
- Research the neighborhood – Take the time to learn more about the neighborhoods where prospective home purchases are located. Speak to the neighbors, visit the neighborhood at different times and find out about homeowners or condo association rules. Keep in mind that many right now are finding their “starter homes” are more permanent than they imagined. This makes finding a good fit critical.
While prices in some metro areas are surging, homebuyers in other parts of the country will find the American Dream remains within reach. Before choosing a starter home, make sure the investment is sound and the property meets needs that are truly important.
