Sustained low mortgage rates since March of 2019 are now ravishing the supply of starter homes across the United States.
In a familiar pattern, the availability of cheaper mortgages encourages would-be home buyers to make the leap to ownership. There is a run on starter properties that cuts heavily into the supply, despite ongoing demand as rates remain low.
But as CNBC pointed out this week, many starter homes that have been purchased recently, or even owned for a while, are also being rented.
"Roughly five million mostly entry-level homes have been turned into single-family rentals, and strong demand for those rentals means investors are unlikely to put the homes up for sale anytime soon." —Diana Olick for CNBC
Nationwide, the supply of homes priced between $200,000 and $750,000 (about 60 percent of the market) finally hit a flat line in September, according to the report. That supply is now expected to decline over the next several months.
Compared to a year ago, the supply of homes priced under $200,000 is down 10%. Meanwhile, only about 10% of newly-built home sales are priced under $200,000, according to Robert Dietz, chief economist for the National Association of Home Builders.
“It’s not just the overall supply of new construction that’s gone down, but the supply of starter homes, so it’s the affordability challenge at the entry level that’s been a particular challenge,” Dietz told CNBC.
If the current trend continues, high demand for affordable and mid-level homes will likely begin to result in price gains.