The call for a greater number of entry-level homes may finally get answered in 2017. Inventories for entry-level homes has remained stubbornly low, greatly limiting the number of affordable homes to first-time home buyer.
The number of available homes with less than 1,800 square feet has continued to decrease, reaching a new low of 16 percent, according to a recent report by Drew Reading, U.S. homebuilding analyst at Bloomberg Intelligence.
More builders realize that inventories need to be higher, and that the demand is there. However, they’ve been slow to deliver due to rapidly rising land and regulatory costs that have made building entry-level homes less lucrative to their business. Indeed, regulation costs have risen 30 percent since 2011, according to data from the National Association of Home Builders. Those rising costs have been passed on to not only the builder but home buyers too.
Still, more builders are finding a way to eke out more business in the entry-level market in 2017. Townhome construction has soared to an all-time high, increasing 29 percent as builders turn to it more to counter high land costs as well as meet the community preferences of entry-level buyers.
Further, builder giants are devoting more of their market shares to the entry-level sector. D.R. Horton has been offering Express Homes to expand its reach into the market. Twenty-seven percent of its total homes sold in 2016 were from its Express Homes.
Lennar also is targeting more affordable markets with greater entry-level homes and floor plan options. It hopes to focus more than a quarter of its sales on that sector in 2017.
Pulte neared the 30 percent mark in 2016 for closings to first-time buyers. Meritage is going even bolder in trying to capture the market: Setting a target goal of 40 percent sales closings to entry-level buyers for 2017.
The majority of entry-level buyers are millennials. Their incomes are on the rise so homeownership may be more within reach. In the past, their incomes were only rising about 1.6 percent but are now topping 5.5 percent. Mortgage lending standards are easing somewhat to help more first-time borrowers get approved for a loan too.
Source: “Top Builders’ Unique Strategies to Capture Entry-Level Buyers,” HIVE (Jan. 4, 2017)