For first-time buyers looking for starter properties in this year’s hot housing market, a decade-long trend could delay this long-awaited milestone further.
The supply of single-family homes, which Freddie Mac defines as homes up to 1,400 square feet, has been low for nearly five decades, and new-build data from the National Association of Home Builders shows single-family homes are significantly larger than they were years ago.
Previous generation homeowners had access to smaller apartments at the beginning of their financial lives. In the late 1970s, an average of 418,000 new entry-level housing units were built per year, according to Freddie Mac. By the 2010s that number had dropped to 55,000 new units per year. An estimated 65,000 new single-family homes have been completed for 2020.
“You can really draw a straight line from the 1940s to the last few years, which is remarkable and also very worrying,” said Sam Khater, chief economist and head of Economic and Housing Research at Freddie Mac.
Mr Khater said he initially expected this decline to be most pronounced in historically expensive metropolitan areas like New York and San Francisco. But when he looked across the country, he saw that apartment hunters in many different areas were facing the same problem.
“What really struck me was the steady decline in the proportion of single-family homes, regardless of geographic location,” said Khater. “What struck me the most was that it really is all endemic. It’s all over the US, no matter where. “
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This phenomenon affects properties in 10 of the largest states, according to an analysis by Freddie Mac. In Florida, for example, in 1985 the proportion of homes up to 1,400 square feet was 58% of the new home supply. Thirty years later, the percentage dropped to 12%.
Homeownership creates greater wealth for those who buy sooner. An analysis by the Urban Institute estimates that those who became homeowners between the ages of 25 and 34 had an average home wealth of $ 150,000 by their early 60s. Meanwhile, those who waited between ages 35 and 44 to buy were making $ 72,000 less in average real estate wealth.
When Kevin Crowder, a 52-year-old homeowner and economic development consultant, bought his first starter home in 2003, he found a 1,000-square-foot apartment in the Miami area. In 2006, he bought what is believed to be the largest house of all time: a two-bedroom house spanning 1,250 square feet.
“It’s amazing what you see in the single-family home market with prices,” he said. “I would disagree that bigger is required. I think smaller is necessary. “
Avid buyers have sparked bidding wars in many places as remote work allows them to broaden their apartment hunt. Other challenges – the student loan crisis and ongoing wage stagnation – make it difficult for some to save a competitive down payment.
“We have a record number of entry-level demand buyers: the millennials who are coming into the market,” said Khater. “And yet we’ve had a seven- or eight-year decline in single-family homes, and that won’t change.”