First-Time Buyers Seeking a ‘Starter’ Home Might Struggle in 2019

Highlights from this report:

  • Housing inventory growth has generated headlines lately.
  • But the supply of “starter homes” is still low in many markets.
  • In those areas, first-time buyers could still face stiff competition.

Housing Inventory Starting to ‘Build Up’

When it comes to the U.S. housing market, inventory growth has been one of the big stories of 2019. A series of real estate reports have shown that the available supply of for-sale homes has increased over the past year, giving buyers more options to choose from.

In March, for example, Trulia economists Issi Romem and Cheryl Young wrote the following:

“[Home] sellers should expect price cuts to be more common, and properties will likely take longer to sell, causing inventory to build up. More inventory, in particular, will slowly ease the competition between buyers, allowing them to negotiate with this spring’s sellers a shade more confidently.”

This in turn has shifted the market toward buyers a bit. With more properties available for purchase, buyers have more negotiating leverage in spring 2019 than they did two or three years ago. This is something we’ve covered before (see related report on 2020 buyer’s market).

But this is an overall trend for the U.S. housing market as a whole. When you drill down a bit, and look at the inventory trends for various price points, you can see there are two very different trends occurring here.

Starter Homes Are in Short Supply

As it turns out, the so-called “starter homes” that are preferred by first-time buyers with limited funds are still in short supply in many U.S. cities. And this could present a challenge for some buyers in 2019.

Competition within the lower price ranges is especially high in the bigger cities where there is more demand for housing.

According to a May 1 report published by, the number of homes listed for $200,000 or less has dropped over the past year. This is the range where many first-time buyers tend to shop, particularly those with limited budgets.

To quote the report:

“The number of homes priced above $750,000 grew 11 percent over last year, while the number of homes $200,000 and under declined by 8 percent. The decline in the number of starter homes continues the  9 percent year over year decline trend seen last month.”

In some real estate markets, buyers who are seeking a starter home at the lower end of the pricing spectrum could face stiff competition. These conditions could stretch through spring and summer of 2019, and maybe carry over to 2020 as well.

Skylar Olsen, director of economic research for Zillow, recently said that the rate of single-family home construction is currently lagging behind the pace we saw in the 1990s. She added that “without an increase in truly new supply, would-be first-time buyers will instead persist in the rental market.”

Low Mortgage Rates Boosting Demand Among Buyers

But there’s some good news for home buyers. Mortgage rates have dropped quite a bit since the first part of 2019, and experts predict they will stay below 5% for the foreseeable future.

This is a good opportunity for first-time and repeat buyers alike. By using a long-term fixed-rate mortgage, borrowers can take advantage of today’s low interest rates while shielding themselves from future increases down the road.

According to the weekly survey conducted by Freddie Mac, the average rate for a 30-year fixed mortgage dropped to 4.14% during the first week of May. That’s down from a peak of nearly 5% reached in November of last year.

Freddie Mac’s research team expects this to boost home-buying activity during summer 2019:

“Moving into summer, we expect rates to be about a quarter to half a percentage point lower than where they were last year, which is good news for the housing market. These lower rates … should provide a solid foundation for home sales to continue to improve over the next couple of months.”

5 Tips for Buying in a Competitive Market

First-time buyers in some real estate markets will have to grapple with a shortage of starter homes during spring and summer of 2019. And those conditions could persist through the end of this year.

Here are some tips for finding and purchasing a starter home in a tight real estate market:

1. Get pre-approved. Buyers who need to use a mortgage loan can benefit from being pre-approved by a lender. This will help you tighten your home search based on your financing range, which could save time and increase your chances for success.

2. Research the market. Being familiar with local market conditions and sales prices will help you make a smart offer when the time comes. When inventory is tight, buyers often have to make offers “on the spot” or shortly after touring a home. You can start your research today by looking at recent sales on Zillow,, and other property listing websites.

3. Make a strong offer. Are you in an active real estate market with limited supply? If so, it’s probably not the time to “lowball” the seller with an offer below the listing price. Making a strong (but reasonable) offer backed by comparable sales data could increase your chance for acceptance.

4. Start early. If you’re in one of those real estate markets where the more affordable starter homes are in short supply, you’ll want to give yourself extra time. It could take weeks to find a house that checks all of your boxes and falls within your budget.

5. Broaden your search. In a tight market, home buyers often need to expand their search areas in order to find a suitable property that’s within the budget. Maybe you have a target location in mind already. That’s fine. But you’ll probably have more options if you consider other areas nearby.