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Good News for First-Time Buyers—Home Builders Increase Entry-Level Production

New-Construction Projects

Good News for First-Time Buyers—Home Builders Increase Entry-Level Production

For years, first-time buyers have struggled to afford home purchases in a high cost market with an undersupply of entry-level homes, but as construction costs rise, that could soon change

May 15, 2023
Entry level house surrounded by trees
Image: Ursula Page / stock.adobe.com

In a housing market hit with all-time high home prices and a fast run-up in mortgage rates, first-time buyers have been largely left behind. But those rising interest rates could also lead to a breakthrough for those who have been unable to afford—or find—available starter homes for the last several years. 

To produce housing more inexpensively, builders are downsizing their projects and shifting gears from custom and luxury homes to smaller homes on less land. Builders expect to complete 6% more entry-level homes this year compared with last year, and while that will help a widening share of first-time buyers, it won’t be enough to support one of the most undersupplied segments of the for-sale market, Realtor.com reports.

“Whenever you see an increase in interest rates and a decline in housing affordability, the market shifts a little bit toward somewhat smaller homes,” says NAHB Chief Economist Robert Dietz.

However, buyers shouldn’t get their hopes up too high.

“Builders will increase their supply of entry-level homes, but it won’t be enough,” says Dietz. This kind of home “will probably remain undersupplied. That’s frustrating news for first-time buyers.”

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