Earlier this year, economic performance rankings of the 100 biggest U.S. metros were released by The Brookings Institution’s Metropolitan Policy Program. The report was sobering. Between 2009 and 2014, just nine of the 100 largest metro areas exceeded averages in growth, prosperity, and inclusion. Though many parts of the country grew robustly overall during the recovery, median wages declined in 80 of the 100 metro areas studied (Illustrations: Michael Kirkham).
What’s more, “Between 2000 and 2014, median household income declined 3 percent, while median prices for new, single-family homes increased 28 percent over the same period,” says Amy Liu, vice president at Brookings and director of its Metropolitan Policy Program. Shutting middle-class Americans out of homeownership has widespread consequences, translating to less stability for regions, neighborhoods, families, and individuals, she says. Yet a confluence of factors—including student debt, wage stagnation, and strict lending rules—has forced home ownership in the U.S. to its lowest level in half a century.
Factors on the industry side are reducing the number of affordable homes on the market, too. Numbers released by John Burns Real Estate Consulting tell a story of development costs quashing new-home construction. Lot prices, impact and permit fees, labor and material costs, tough regulations, and code changes continue to drive up the cost of building all homes, including those at the entry level. Yet some home builders are responding to the challenge, and they’re succeeding.
For builders equipped to serve the market, the current lack of starter homes for sale is a big opportunity, says Tony Callahan, CEO and president of Callahan Consulting Group. “There are just too many buyers to ignore,” he points out. Those under 35 are now the biggest buyer segment the nation has ever seen. “These are the future pipelines,” says Eric Lipar, chairman and CEO of LGI Homes.
What’s more, the term “entry level” can be deceiving. Often linked to young buyers, it also includes those starting over in the wake of financial turmoil or divorce. “The reason it’s so crucial is that we’re talking about more than first-time buyers. We’re talking about price point,” Callahan says.