Prices on starter homes in the U.S. are growing at rates exceeding those for top tier homes, and have even reached levels surpassing the peak of the housing bubble. The price increases are coming as a wave of first-time homebuyers enters the market, leading to a simple case of insufficient supply.
Prices for the least expensive group of previously owned homes were up over 10% this August compared to a year ago. According to online real estate firm Zillow, the decline in available listings among the lowest third of the market has worsened the problem, dropping from 25.6% to 24.4% in the last year.
The situation has led to price levels that are out of reach for first-time buyers within the millennial generation. And as the U.S. economy continues its slow exit from the recession, the incomes of men between 25 and 34 are at an inflation-adjusted level that is no higher than 25 years ago, according to data from the U.S. Census Bureau.
The recent rise in prices was predicted by Zillow’s Stan Humphries in July of this year, “The lack of home-buying activity from Millennials thus far is decidedly not because this generation isn’t interested in homeownership, but instead because younger Americans have been delaying getting married and having children, two key drivers in the decision to buy that first home. As this generation matures, they will become a home-buying force to be reckoned with.”
Despite their common association with the “sharing economy”, a majority of Millennials agree with Humphries’ opinion and said they would rather own a home than rent, according to a survey of 18-to-34 year olds conducted this year by Fannie Mae.
Despite the trend of expendable merchandise, the desire to own one’s living space still seems to hold a special place in the consumer’s mind.