From USA Today:
This spring home-buying season should be a coming-out party for Millennials, many of whom are finally ready to make a purchase after hunkering down for years in their parents’ basements or expensive apartments.
The only problem: Much of the food at the party is gone, and what’s left is priced like caviar.
Although solid job and income growth is emboldening many prospective home buyers, record low housing supplies are driving up prices and curbing sales, especially for Millennials looking to buy starter homes.
“For home buyers, this is shaping up to be one of the most difficult years in recent memory,” says Ralph McLaughlin, chief economist of Veritas Urbis Economics, which studies the housing market.
For sellers, it will be a standout spring that brings big profits, unless those sellers themselves are looking to buy a larger home in the same metro area. “It’s going to have the feel of a hot market,” marked by multiple offers and bidding wars, says Lawrence Yun, chief economist of the National Association of Realtors (NAR).
Already, house hunters are waiving inspections, making offers without even seeing homes and bidding well above asking price. Yet Yun predicts sales will be flat compared to spring 2017 because of the skimpy supplies and reduced affordability for many buyers.
Meanwhile, existing homeowners, particularly Generation Xers, would like to move to bigger homes but fear not finding one or having to shell out much more for it, especially with average 30-year fixed mortgage rates at 4.4%, up from less than 4% last year, Melendez says. And after the sharp price run-up since 2012, many homeowners worry any new house they buy could lose value. Fifty-three percent of homeowners surveyed by ValueInsured in February think they could see another housing crash, up from 37% in early 2016.
Many Baby Boomers, meanwhile, are delaying retirement and staying in their current homes longer as well, McLaughlin says.
Bottom line: Many existing homeowners are staying put, further limiting the supply of starter homes and pushing up their prices. Buyers of starter homes devoted an average 41.2% of their income to housing costs in the first quarter, up from 37% a year ago, Trulia says. That’s well above the 30% most experts recommend.