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Starter home supply growth likely not a blip, but sign of a shift

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Starter home inventory is letting up, and the growth in supply seems to be more of a market shift than a temporary change, according to a Zillow analysis of realestate.com data.

While this rising inventory gives consumers more options for housing at affordable price points, it is also helping settle overall price appreciation and supporting cooler housing conditions. This means mortgage lenders should prepare for new entrants to the market.

First-time homebuyers in particular will be better positioned to buy a house with entry-level housing on the rise in February for the seventh consecutive month. This comes after nearly four straight years of annual declines. Starter home supply increased 4.1% year-over-year.

The average entry-level home was worth $130,200 in February. And though this is up 9.2% from the same period a year ago, it’s the slowest rate of appreciation since June 2016. For comparison, starter home values rose 12.5% in February of last year from the prior year.

Another sign that conditions are getting better for borrowers is the growing number of new homes that have yet to be purchased. New supply not yet absorbed by the market reached its highest level in more than eight years, further suggesting the market is cooling, according to Fitch Ratings.

Overall house price appreciation remained relatively stable throughout the country, growing 4% year-over-year in the fourth quarter of 2018, according to Fitch. This is slower than the average rate of home price growth the nation has averaged for about the last six years.

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