First-Time Home Buyers Find Slowing Prices, Inventory Uptick in Q3

Price growth slowed a skosh and inventory ticked up slightly across the nation’s biggest metros in the third quarter. These modest gains will not be enough for many first-time home buyers who have had their savings increased by the pandemic.

National averages provide a good big-picture look at what’s happening in the housing market, and in the third quarter, that story is a slight improvement over the last: Prices were down a smidgen (1%) and inventory up 22% nationwide, quarter over quarter. However, homes were listed at 5.3x the median income of first-time buyers. This is an old affordability rule.

To be sure, some first-time buyers are making a successful go of it, in spite of the strong seller’s market we’ve been in for more than a year. These inaugural buyers made up 34% of all buyers from July 2020 to June 2021, compared with 31% in the year prior, according to the National Association of Realtors’ 40th annual buyer survey.

Some buyers have likely found higher personal savings rates, increased work location flexibility and super-low interest rates over the pandemic fodder for staking a claim in this seller’s market. For potential first-time buyers who haven’t experienced similar benefits, the third quarter was another time when prices were too high and homes affordable was scarce.

Affordability across the nation’s biggest metros

Across the nation’s largest metro areas, affordability remained stable in the third quarter; homes were listed at 5.5 median first-time buyer income for the second quarter in a row. This is significantly higher than the 4.8-times first-time buyer income that homes were listed last year. Although prices have increased significantly over the past year, this rate of growth has started to slow down.

Click here for a table containing affordability data for all 50 metros analyzed.

The most affordable metro areas in the third quarter, as usual, are in the Midwest and Rust Belt regions. These include Pittsburgh (3.3), St. Louis (3.4), Buffalo (3.6) and Baltimore (3.9), where homes are listed for 3.1 times the first-time buyer’s income.

The least affordable metro areas for first-time buyers are, once again, all in California. They include Los Angeles (12.1), San Diego (9.2), San Jose (8.3), Sacramento (7.6) and Riverside (7.4).

First-time buyer guidance: Some mortgages can make homeownership dreams more attainable for first-time buyers who may have less set aside for down payments and shakier credit histories. They are not a guarantee. An recent analysis shows that FHA applicants, federally backed loans for first-time buyers, were denied. This is because 2020, lenders tightened their standards to manage the flow of funds in high demand. FHA applicants can lower their debt-to income ratio and improve credit scores by making on-time payments. This will increase their chances of approval. Also, they can explore other first-time home buyer programs — FHA loans aren’t the only option.

Prices dip ever so slightly

Across the largest metro areas, prices dipped a hair (1%) from the second quarter to the third, on average. Although this is one indicator that the breakneck pace of price growth is slowing down, many potential buyers won’t have noticed the change. However, price drops were evident in some metros.

Prices fell double digits from the last quarter in three metros analyzed: Pittsburgh (down 12%), Cincinnati (dropped 10%) and Milwaukee (down 10%), and when compared with last year, the decreases were even more significant. Prices fell double digits, year over year, in 10 metros, including a 21% drop in Milwaukee.

It’s important to note that prices have been incredibly high for over a year now, so even these double-digit drops are making up for only a small portion of the extreme increases.

Click here to see a table showing year-over-year price changes for all 50 metros analyzed.

Not all areas experienced the same relief. Prices rose in warmer climate markets like Austin, Texas, Tampa, Florida, and Las Vegas, as well as Tampa, Florida. These prices were higher than last quarter and last year. As a matter of fact, home prices increased another 29% year over year in Austin, one of most sizzling markets in the country.

First-time home buyer guidance: Knowing what’s happening in your local market — not the national headlines — is crucial to setting expectations as you begin to shop for a home. Although prices and supply have increased across the country, it is possible that your local area or neighborhood has been one of the few exceptions. Or at least one where the constricting extremes don’t seem as severe. Ask local agents what they are seeing in the area you’re interested in. Ask about the homes that are available in your price range. Find out how long they stay on the market, and what average offers they get.

Inventory up, in many markets

The high list prices are no doubt luring home sellers into the market, and we saw the number of active listings climb 31% compared with last quarter. This is especially notable because home listings tend to decrease in the third quarter as cooler weather arrives and home-buying season slows down. The homebuying season was unusually strong for the second consecutive year.

Some metros saw quarterly increases big enough that hopeful buyers would notice their options expanding. Thirteen metros saw inventory rise 40% or more. The most sought-after city in Texas, Austin, is home to the best in this analysis , rose 73%.. Hartford, Connecticut, is the only metro that saw a double-digit decrease; the number of active listings there fell 25% on the quarter.

Click here to see a table with quarter-over-quarter and year-over-year supply data for all 50 metros analyzed.

First-time home buyer guidance: We’re still in a heavily tilted seller’s market, so buyers shouldn’t get overly optimistic if they’re seeing more active listings in their area. Competition is slightly less when there are more homes on the market. You can’t expect your first offer to be accepted if there aren’t enough houses available. If you are able to work with other buyers and move quickly, you might be able to get your contract under contract sooner than last year or even months ago.

Milwaukee: Climbing the affordability chart

If you’re shopping for a home in Milwaukee, you’re better off than most urban house hunters. This metro area has consistently gotten more affordable in 2021, moving from the 16th most affordable metro in the first quarter, to the ninth most affordable in the third. In the most recent quarter, homes were listed at four-times the median first-time buyer’s income. This was at a time when inventory had increased significantly.

List prices fell 10% from Q2 and 21% from Q3 2020, more than any other metro analyzed. The number of active listings is about the same as last year, growing only 3%. However, they are up 69% compared to last quarter. This means that home buyers will see a significant increase in listings that are returned by their preferred app when they search for them.

Monthly median list price and list count figures are from monthly Inventory Data from the residential listings database as of November 2021. The U.S. Bureau of Labor Statistics’ Consumer Price Index adjusted the nominal list prices to September dollars. All monthly medians were converted into quarterly averages.

When comparing new quarterly data with affordability data in the previous quarter, we used figures adjusted to the period in which they were first analyzed. When comparing quarter-overquarter changes, incomes and list prices for the first quarter were not adjusted to Q3 dollar. This was done to maintain consistency between the most recent and current reports.

The median age of first-time home buyers is 33, according to the National Association of Realtors’ 2020 Profile of Home Buyers and Sellers. Estimated income for first-time home buyers was derived from the U.S. Census Bureau’s 2019 American Community Survey median household income for householders ages 25-44 — the range likely to include most first-time home buyers — and escalated to September 2021 dollars using the Bureau of Labor Statistics’ Employment Cost Index.

San Juan, Puerto Rico, is among the 50 most populous metros but was excluded from the analysis due to insufficient inventory data.

Interpret metro rankings with caution. There may be overlap in affordability ratios due to rounding and margins of error in income data.

Elizabeth Renter,
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