Home Builders Swap Luxury for Starter Homes

Blog posted On May 16, 2017

With millennials entering the housing market slowly, luxury homes are not on their radar.  The Wall Street Journal reported home builders are switching gears and building smaller.  The newest generation is shopping small, so home builders have put their focus on starter homes rather than luxury homes.

After falling to a 30-year low in 2015 (32%), the share of first-time home buyers is beginning to recover, increasing to 35% in 2016.  New home buyers are facing inventory constraints and appreciating prices.  Analysts hypothesize that one of the factors delaying millennial homeownership is the lack of starter homes available.  Baby boomers looking to downsize are shopping in the same market as first-time buyers, adding to inventory woes.

Last month, a survey by Ellie Mae reported millennials are closing home loans at the fastest pace since March of last year.  In a competitive market, time is of the essence.  Ellie Mae executive vice president of corporate strategy, Joe Tyrrell, said in a statement, “we saw time to close decrease from 49 days in January to 44 days in February, which indicates our lenders are seeing more efficiency.”  

Average mortgage rates have increased since last year’s levels, but remain historically low.  Purchase originations made up 86% and refinances are down to 14% of the market share.  As home builders catch up to inventory demand, new purchases are only expected to grow. 

Sources: HousingWire, HousingWire