Low Margins and High Standards Make It Tough
By Jonathan Sweet
This is the second in a series on the shortage of starter homes. In Part 1, in the July/August issue of Georgia Professional Builder, we examined the roots of the entry-level housing shortage.

As the housing market has recovered over the last few years, the entry-level segment has struggled. Housing affordability remains elusive in many markets, especially for starter homes.

Just take a look at the historic data: In 2006, there were 443,000 new homes built priced at less than $250,000. In 2016, that number was 156,000.

Overall, housing starts were up 7.8 percent through the first six months of 2018, although starts did drop 9.1 percent in June as concerns mounted over the impact of tariffs on the cost of lumber and other materials.

“We have been warning the administration for months that the ongoing increases in lumber prices stemming from both the tariffs and profiteering this year are having a strong impact on builders’ ability to meet growing consumer demand,” NAHB Chairman Randy Noel, a custom home builder from LaPlace, La., said when the report was released in July. “This is why we continue to urge senior officials to take leadership and resolve this issue.”

If the tariffs continue to drive up prices, that will have an even greater impact on the lower end of the market.

“The concern over material costs, especially lumber, is making it more difficult to build homes at competitive price points, particularly for newcomers entering the housing market. Moreover, the soft permit report does not suggest a significant increase in housing production in the near term,” said NAHB Senior Economist Michael Neal. “However, consumer demand for single-family housing continues to increase as the overall economy and labor market strengthen.”

Those factors, along with rising interest rates, have pushed housing affordability to its lowest point in 10 years, according to the latest National Association of Home Builders/Wells Fargo Housing Opportunity Index, released in August.

Only 57.1 percent of new and existing homes sold in the second quarter of 2018 were affordable to families earning the U. S. median income of $71,900. That was down from 61.6 percent in the first quarter of 2018 and the lowest level of affordability since 2008.

The national median home price jumped from $252,000 in the first quarter of 2018 to $265,000 in the second quarter—the highest quarterly median price in the history of the HOI series. At the same time, average mortgage rates increased by more than 30 basis