THE Missing Market
Starter Homes: The Missing Piece of Housing Recovery
By Jonathan Sweet
This is the first in a series on the shortage of starter homes. In Part 2, we’ll take a look at builders that are successfully capitalizing on the entry-level market.

There’s no doubt the housing market is in the midst of a recovery. After the doldrums of the housing crash and the Great Recession, residential construction is growing steadily.

Nationally, housing starts were up 2.4 percent in 2017 from 2016, the fifth straight year of growth. Total starts are up more than 30 percent since 2013. Georgia construction also continues to boom, especially in the Atlanta market, where housing starts were up 10 percent year-over-year for the first quarter of 2018.

But one part of the housing market has been getting left out of the housing recovery: the entry-level market. In 2006, there were 443,000 new homes built priced at under $250,000. That number bottomed out at 146,000 in 2014 and climbed slightly to 156,000 by 2016. For reasons both economic and sociological, younger consumers aren’t buying homes.

Why a Shortage?

But the reasons present something of a “chicken or the egg” question. There’s demand for starter homes, but it’s tough to make the numbers work for many builders. Buyers can’t buy starter homes because there aren’t enough out there.

“The market is incredibly strong but first-time buyers are having a much tougher time finding homes even than last year, and definitely

more so than pre-recession,” says Kara Cook, co-founder of Cook & James, a Georgia-based firm that offers real estate transaction services and “at home” closings. “The biggest problem

currently is lack of supply.” Rising interest rates and rising home prices especially affect first-time home buyers, Cook says, adding

that most new construction is priced too high for entry-level buyers, largely due to high land and

construction costs. “Rentals are also contributing to low supply of entry-level homes,” Cook adds. “During

the recession, investors bought a large number of homes for rental use and

they are not selling because they yield high rental income.”

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