Inventory is worst at the low end of the market, but it also continues to fall for trade-up homes. The number of starter homes on the market in April dropped by 12.3 percent from April 2015, according to a report from Trulia, a home listing website. That pushed prices higher, so that first-time homebuyers overall will need to spend 1.3 percent more of their income on a home than last year. The number of trade-up homes on the market decreased by 11.5 percent, meaning those buyers will have to pay just under 1 percent more of their incomes on housing.
"A lack of starter home affordability is becoming problematic in places outside of California," Trulia's chief economist Ralph McLaughlin wrote in the report. "Starter home affordability is down most in Oakland, CA, but is beginning to take a hit in Denver, Portland, Seattle, and central Florida."
That is not, however, the case everywhere. Of the nation's 100 largest metropolitan housing markets, 1 in 5 are seeing falling demand for starter homes, which has offset the tight supply, according to Trulia. Home prices there are actually falling. Cities like Columbia, South Carolina, Kansas City, Missouri, Hartford, Connecticut, and Madison, Wisconsin, are seeing drops in starter home inventory and in prices.
Demand for starter homes is falling for several reasons. First and foremost is that investors are not as active as they were during the housing crash. In addition, starter homes are not affordable to entry-level buyers in several markets.