With paying above asking price becoming the norm, younger, first-time buyers are unable to compete in bidding wars
For young people who are looking to buy their first home, there are a lot of things to mark off the checklist. Paying down student debt, extreme budgeting (and maybe some less than ideal living arrangements… Hello, again, Mom and Dad!) to save for a down payment, and securing a steady job with a salary allowing for the purchase of a home. But with the loans paid, a down payment saved, and a job secured, the next part is easy, right?
Well, not so much. Just ask Brittany and Craig Murphy, a couple in their late twenties who are finding there is still at least one major hurdle to clear before becoming homeowners. With such tight inventory, attempting to purchase a home is almost certain to lead to a bidding war. The Murphy’s, for example, lost two bidding wars on Nashville area homes already, despite their willingness to pay more than 10 percent above asking price. Unfortunately for them, the other buyers were willing to go beyond that 10 percent mark, offers the Murphy’s couldn’t match.
Making things worse, is the fact that the housing shortage is worst among starter homes. According to Newsmax.com, the inventory for properties priced below $250,000 dropped 8.2 percent in January from a year prior. That, combined with the fact that people 35 or younger are the largest segment of the home buying market. They accounted for 35 percent of buyers for a 12-month period through June 2015, a 28 percent increase from three years earlier.
With more young people than ever before looking for fewer houses in their price range, affordability has become a major issue. On average, buyers of starter homes need to devote 38 percent of their income to housing costs, which is up 6 percent from four years ago.
The solution to this problem is to increase inventory, and the only way to do that is to build more starter homes. Recently, however, builders have been focusing on larger profit margins and building more expensive offerings. The higher prospective buyers’ budgets are, the more homes there are that are available to them. But for those with strict budgets without much flexibility, finding a home is as hard as ever.