Why Young Home Buyers are Facing Limited Inventory and What They’re Doing About It

Blog posted On July 02, 2019

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For the past few years, home buyers have faced a competitive market with a limited number of homes for sale.  One of the chief factors impacting housing supply is the Baby Boomer generation.  Baby Boomers are staying in their homes longer, instead of downsizing or moving into retirement communities.  This trend has kept previous generations, who are homeowners, in their starter homes longer, preventing would-be first-time home buyers from entering the market. 

From 2006 to 2018, the number of homeowners who are 55 and over has increased by 9.6 million.  The number of homeowners under 45 has actually decreased by 4.3 million.  This age divergence is a result of people living longer and also the lingering effects of the housing crisis.  Young people who bought homes with nontraditional mortgages with risky interest rates, had their credit scores and savings adversely impacted by the housing bust.  Older people who already owned homes, however, fared better.  

New home construction may help replenish some housing supply, but demand still outpaces supply.  At the peak of the housing boom, over a decade ago, US home builders built single-family homes at a rate of about 1.8 million per year.  Today, that rate has plummeted to around 800,000 per year.  Additionally, newly built homes come with higher price tags.  Young buyers struggling to save for a down payment may not qualify for the higher mortgage a newly built home would require.  Prospective home buyers waiting to either move up or buy a starter home find themselves waiting even longer.  Data shows that the age at which homeowners downsize, if they choose to downsize at all, has increased until 75-years-old or older. 

First-time home buyers are still finding ways to break into the competitive housing market, especially while mortgage rates are historically low and home price appreciation is slowing down in many metros.  On one end of the spectrum, first-time home buyers are opting for homes in need of repair or renovation or fixer-uppers, because of their availability and cheaper price tag.  A fixer-upper might be the best choice for you if you are able to live in the home or somewhere else if the home is uninhabitable while the repairs take place, if you are able to invest the time and money into a renovation project, and if you have previous understanding or experience with completing major construction projects.  Other first-time home buyers are skipping the starter home altogether and moving right into the home they perceive as their “forever home.” 

From 2012 to 2016, nearly one-third of home buyers between the ages of 33 and 37-years-old bought four-bedroom homes as opposed to one-or-two-bedroom starter homes, compared with about 24% of that same age group in 1980, 1990, and 2000.  Before skipping the starter home and buying bigger, you need to ask yourself these questions:

  • Can you afford a larger home? – this includes the larger down payment, higher closing costs, steeper monthly mortgage payment, and of course ongoing and unexpected maintenance and repairs. Compare your budget with a mortgage lender to see how significant the cost difference really is.
  • Do you expect to stay in this location indefinitely? – are you settled with your job? Your partner?  Your possible or existing family?  If you expect to move soon, or you’re not committed to staying, buying a larger home means you’ll have more to sell later.  Selling or renting a smaller home may be easier if you think you will be moving in a few years.
  • Have you exhausted your starter home search? – before you buy bigger, consider checking nearby neighborhoods, and expand your search to fixer-uppers or homes that may need repair. With the right home financing it’s easy to turn the house you like into the home you love.

Even if you’ve gotten discouraged with your home search, the right home could still be out there.  First-time home buyers are still finding ways to buy, especially with today’s low mortgage rates.  If you’d like to compare the costs of buying bigger, try out our free mortgage calculator.   


Sources: Bloomberg,