Top 3 Housing Market Trends Affecting First-Time Buyers in 2019

Key highlights from this article:

  • A new report revealed key housing market trends affecting buyers.
  • They include slower home-price growth and inventory shortages.
  • Affordability challenges are an issue for many first-time buyers in 2019.

A new report from Harvard University’s Joint Center for Housing Studies (JCHS) revealed some key housing market trends that have happened over the past few years. These trends are shaping the current real estate market and have a particularly strong impact on first-time home buyers in 2019.

The report, entitled “The State of the Nation’s Housing 2019,” showed that home-price appreciation is slowing and starter homes are still in short supply. It also highlighted the affordability challenges that are affecting many first-time home buyers in 2019.

Here’s an in-depth look at three of the housing market trends identified in the JCHS report.

1. Lower cost ‘starter’ homes are in short supply in 2019.

Back in May, we reported on a shortage of starter homes nationwide. These are properties at the lower end of the pricing spectrum, where many first-time buyers tend to shop. The JCHS report showed that this is still an ongoing issue. It is one of the key housing market trends home buyers should know about.

According to the report, construction of moderately priced homes has lagged in recent years:

“…construction of modest-sized single-family homes has been particularly weak. Despite increases in 2017, small homes under 1,800 square feet represented just 22 percent of single- family completions, down from 32 percent on average in 1999–2011.”

Housing supply remains low up and down the price scale, from a historical standpoint. But conditions are particularly tight within the lower price range.

As a result of this housing market trend, first-time buyers in some U.S. cities might struggle to find a suitable “starter” home that meets their needs and falls within budget.

2. Home-price appreciation is slowing, and reversing in some housing markets.

In many real estate markets across the country, house values are rising at a slower pace in 2019 when compared to previous years. And in some areas — like Seattle and San Jose — prices are actually starting to dip. This is another big housing market trend that first-time buyers should be aware of.

To quote the JCHS report:

“The S&P/Case-Shiller National Home Price Index shows an even sharper slowdown, with price increases falling from a high of 6.5 percent in early 2018 to 4.6 percent in December, and then to 4.0 percent in early 2019.”

According to the real estate information company Zillow, the median home value in the U.S. rose 5.4% over the past year (as of July 2019). They’re forecasting a more modest gain of 2.5% over the next 12 months.

Slower price growth — and, in some cases, declines — are another housing market trend that could affect first-time buyers in 2019 and 2020.

Of course, real estate conditions can vary from one city to the next. And sometimes significantly. Some housing markets (like Boise, Idaho and Spokane, Washington) are still experiencing double-digit annual price growth, as of summer 2019. Meanwhile, home values in other cities are currently leveling off or starting to dip.

This is why we encourage home buyers to research conditions in their local area, before making a purchase. This is especially important for those buyers who only plan to stay in the house for a few years.

3. Affordability is still an issue for many first-time buyers.

Rising home prices have outpaced wage growth over the past ten years. As a result, many housing markets across the country are now unaffordable to average earners. In these areas, a person who earns a median household income can scarcely afford to buy a median-priced home.

Affordability challenges can be especially hard on first-time buyers, since they don’t have money from a previous home sale to put toward their next purchase.

According to the real estate data and analytics CoreLogic, prices for more affordable homes (priced at or below 75% of the metro-area median) rose 6.9% on average during the last quarter of 2018. That was nearly double the appreciation rate for more expensive homes (those priced at or above 125% of the metro area median).

These housing market trends have made life difficult for first-time buyers with average incomes, especially in those cities where prices are still climbing steadily.

But here again, conditions vary greatly from one city to the next.

At the metropolitan level, the price-to-income ratio rose in 85 of the nation’s 100 largest housing markets last year. That means houses have become less affordable in those areas. Home prices were at least four times higher than incomes in 41 metro areas across the U.S.

The least affordable housing markets (when measured by price-to-income ratio) were San Jose, Honolulu and Los Angeles. Some of the most affordable markets are located in the Midwest and Northeast, including Toledo, Syracuse and Akron.

According to the JCHS report:

“Price-to-income ratios also reached new peaks in traditionally low-cost markets in the Midwest, such as Grand Rapids (3.0), Indianapolis (3.0), and Kansas City (3.1). Although these markets remain relatively affordable, increases in price-to-income ratios have raised concerns that potential buyers are being priced out of homeownership in much of the country.”

Summary and Conclusion

There’s a lot to digest in this report, and we’ve only scratched the surface. Here’s a quick recap of the top housing market trends that could affect first-time buyers in 2019:

  • Home-price appreciation is slowing down in many U.S. cities. Real estate forecasts for 2020 suggest that we could see smaller price gains (or even some declines) in housing markets across the country.
  • Despite the aforementioned slowdown, affordability is still a major hurdle for a lot of first-time buyers.
  • Many cities are also experiencing a shortage of lower-priced starter homes, due to a lag in construction and other factors.

Our advice for first-time buyers: Start your housing search early, especially if you’re in one of those housing markets where inventory is low. Broaden your search to increase the chance of finding a suitable home within budget. Research your local real estate market and make an informed decision.