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A seemingly healthy economy, rising rent rates and a limited
inventory of existing homes are pushing some buyers into the new homes market. Interestingly, they have few options once they arrive; new home construction is largely targeted towards mid- to high-price tier properties. First-time buyers are in limbo, adding uncertainty to an already imbalanced market.
Census Bureau data reports year-over-year prices of new home sales have risen above the May 2014 estimate. Price trends indicate above average emphasis on move-ups and luxury home sales. In May 2014, the average price of homes sold was $323,500. The May 2015, the average sales price came in at $337,000.
These aren’t first-time homebuyer prices though the group makes up a noteworthy portion of home buyers returning to the market. In 2014, first-timers made up 27 percent of buyers. This summer, they’re exceeding 32 percent, reports National Association of Realtors. A Campbell/Inside Mortgage Finance HousingPulse suggests an even higher figure with first-timers composing nearly 40% of purchases in May. Most builders overlook this growing group.
Inaccurate data—or incomplete data, at best—may be a factor in builders’ strategies. On the surface, home demand is up as are job growth and wages. In theory, first-time home buyers are walking into a market that is accommodating their needs and improving their odds. Except it isn’t.
A Pew Research Center report explains, “For most U.S. workers, real wages — that is, after inflation is taken into account — have been flat or even falling for decades, regardless of whether the economy has been adding or subtracting jobs.” The report continues, “But after adjusting for inflation, today’s average hourly wage has just about the same purchasing power as it did in 1979.” The organization’s August 2014 survey concludes that 56 percent of Americans say their family’s income was falling behind the cost of living. Buyers’ money isn’t going as far as it should.
Real incomes have the same purchasing power as they did in 1979. In May 1979, median home prices came in at only $62,800 with an average of $71,800. Real home prices have skyrocketed by 350 percent although real incomes have barely budged. First-time home ownership isn’t as attainable or sustainable as some reports suggest. The surge of mid- and upper-tier housing leaves a void for entry-level buyers—32-40 percent of buyers in the market.
This under served group means two things for the multifamily industry. The first is that it will enjoy more renters today and in the near future, since forecasts do not indicate a notable increase in wages. The second is that the pool of renters may ultimately decline. This demographic ultimately craves home ownership. If and when the opportunity presents itself, they’re off to the lots! That’s worth considering as multifamily continues its documented infatuation with mid- and top-tier rentals.
