This spring home-buying season should be a coming-out party for Millennials, many of whom are finally ready to make a purchase after hunkering down for years in their parents' basements or expensive apartments.
The only problem: Much of the food at the party is gone, and what's left is priced like caviar.
Although solid job and income growth is emboldening many prospective home buyers, record low housing supplies are driving up prices and curbing sales, especially for Millennials looking to buy starter homes.
"For home buyers, this is shaping up to be one of the most difficult years in recent memory," says Ralph McLaughlin, chief economist of Veritas Urbis Economics, which studies the housing market.
For sellers, it will be a standout spring that brings big profits, unless those sellers themselves are looking to buy a larger home in the same metro area. "It's going to have the feel of a hot market," marked by multiple offers and bidding wars, says Lawrence Yun, chief economist of the National Association of Realtors (NAR).
Already, house hunters are waiving inspections, making offers without even seeing homes and bidding well above asking price. Yet Yun predicts sales will be flat compared to spring 2017 because of the skimpy supplies and reduced affordability for many buyers.
"This year's (spring) buyers may be competing against some of those buyers who have been unsuccessful during the past few months," Zillow Senior Economist Aaron Terrazas says. "Increasingly, the traditional seasonal boundaries around home shopping season … are becoming less pronounced" as the fierce competition forces buyers to lengthen their searches.
Some of the hottest markets in recent years — such as Seattle, Las Vegas and San Jose — have continued to post double-digit annual price increases. Now, they've been joined by cities such as Nashville, Salt Lake City and Kansas City.
Why? Too many buyers chasing too few homes. In February, there was a 3.4-month supply of existing homes nationally, the lowest on record for that month and substantially below a balanced six-month inventory, NAR says. The number of starter homes is down 14.2% in the first quarter from a year ago, according to real estate research firm Trulia.
Not that there aren't buyers' markets. Sales have dipped over the past year in Hartford, Conn., Toledo, Ohio, and Baton Rouge and were flat in Philadelphia and Baltimore, according to Attom Data Solutions.
Yet nationally, the median home price in February was up 5.9% from a year earlier to $241,700, according to NAR. Meanwhile, average yearly wage growth has been stuck at about 2.5%.
In the Las Vegas area, the median home price has jumped about 12% over the last year and doubled the past five years, Attom figures show. Homes priced below $200,000 typically draw 15 to 20 offers, says Chris Bishop, managing broker of Coldwell Banker Premier Realty. To stand out, some bidders are writing letters to sellers, detailing what they like about the house, says Rob Pistone, a broker at Keller Willians Realty.
Homes typically stay on the market 41 days, down from 52 days a year ago and a typical six months. Besides Millennials, demand is fueled by "boomerang buyers" who may have lost homes to foreclosure during the housing crisis and recently repaired their credit, Bishop says. Las Vegas was hit especially hard by the crash.
"We just don't have enough affordable housing," says Bishop, who is president of the Greater Las Vegas Association of Realtors. Sales in the area soared 34% in 2017 but fell 5% in February in a possible sign the supply crunch is damping activity.
Maria Maneva, 37, a Las Vegas escrow officer, is looking to move to a larger house now that she and her boyfriend have a 3-month-old daughter. They've seen little of interest in their price range of $300,000 to $400,000 and anything appealing sells within a day or even hours, Maneva says.
So when she saw a four-bedroom house she liked, she made an instant offer at the asking price of $405,900. And when the seller began leaning toward a rival all-cash offer, she upped her bid by $600 and her agent — Jason Mattson of Orange Realty — agreed to lend her the entire amount in cash. She still didn't get the house.
Now, she says, "I will make an offer without even looking at" a house, she says. "I'm even more scared."
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Millennials, in particular, aren't short on enthusiasm. "The first-time home buyer is eager," says Joe Melendez, CEO of ValueInsured, which insures homebuyers against house price declines. "They've decided they want to be homeowners."
Thirty-six percent of adults under 35 owned a home in the fourth quarter, up from 34.1% in early 2016, according to Veritas and Census Bureau figures. That's still below a historically normal 40%. But more than a third of all home purchases were made by Millennials in the 12 months ending last July, making the group the most active generation of buyers, according to an NAR survey.
Many are finally getting married and starting families after putting off those life-changing events. And their household income has risen to $88,200 from $82,000 a year ago, the NAR survey shows.
At the same time, builders are grappling with construction worker shortages that have delayed projects and driven up prices, as well as soaring material costs, limited land availability and onerous regulations. About 900,000 single-family houses are expected to be built this year, well below demand for 1.3 million, according to the National Association of Home Builders.
The higher costs are prompting builders to put up fewer starter homes and more expensive units to maintain profit margins.
Meanwhile, existing homeowners, particularly Generation Xers, would like to move to bigger homes but fear not finding one or having to shell out much more for it, especially with average 30-year fixed mortgage rates at 4.4%, up from less than 4% last year, Melendez says. And after the sharp price run-up since 2012, many homeowners worry any new house they buy could lose value. Fifty-three percent of homeowners surveyed by ValueInsured in February think they could see another housing crash, up from 37% in early 2016.
Many Baby Boomers, meanwhile, are delaying retirement and staying in their current homes longer as well, McLaughlin says.
Compounding the logjam is the tax overhaul. It caps the mortgage interest deduction at home values up to $750,000, down from $1 million, for homes bought after Dec. 15, discouraging some high-end buyers from moving.
Bottom line: Many existing homeowners are staying put, further limiting the supply of starter homes and pushing up their prices. Buyers of starter homes devoted an average 41.2% of their income to housing costs in the first quarter, up from 37% a year ago, Trulia says. That's well above the 30% most experts recommend.
Home buyers are girding for a battle. About a quarter are willing to offer more than asking price and 40% plan to put down more than 20% when they make a purchase.
"It's kind of like a race," Maneva says.