The most acute shortage: Disappearing Entry Level Homes A small single-family home, maybe 1400 or so square feet with a little yard - a patch of grass for a swing set or a garden. Young families yearn for this possibility. Yet, it’s vanishing in America. In 1982, 40% of the country's newly constructed homes were entry-level. By 2019, the annual share had fallen to 7%. The decline has been “as steady as a metronome,” says, Freddie Mac's chief economist. "It's a huge problem if you think about the fact that home equity accounts for the bulk of wealth for the overwhelming majority of Americans." Builders, housing advocates and policymakers agree about why entry-level homes have become so scarce: the cost of materials and labor, zoning regulations that discourage construction, and opposition from residents to increased housing density that would allow small lots suitable for entry-level homes. Then the biggest factor: the rising price of land. Space isn’t plentiful where jobs are and where people need to live. Land has become scarce, more restricted and more expensive thus making it impossible for builders to turn a profit on smaller single-family homes. They have to factor the land prices, carrying costs (higher and longer in some towns than others), and those skyrocketing materials and labor costs into their selling prices. “You must build a bigger home in order to recoup costs," says one New England developer. "But it's increasingly tough and more builders can no longer do it." We’ve seen this in our towns, where some of our smaller, local builders have just stopped building. Supply of existing homes: Insufficient Quantities The number of Millennials who can and want to buy is growing while many Baby Boomers, living longer than previous generations, choose or have to (insufficient resources/lack of affordable trade-down supply) age in place. At present, Boomers have an 80% home ownership rate and they own 41% of the nation’s homes, despite the fact that they are only 22% of the population. Those who have the resources and do move, often opt for a brand new townhouse or condo – thereby eliminating worrisome home maintenance issues. Some have chosen to rent instead of own. Millennials, ages 26 to 41 and numbering 72.1 have now surpassed Boomers, ages 58 to 76 and numbering 71.6 million, as the largest living generation. Gen X (ages 42 to 57) at 65.2 million will surpass Boomers in 2028. Homes presently owned by Boomers will become available by mid-century when their population is expected to dwindle to 16.2 million. Gradually, some of these younger people will benefit from a generational transfer of wealth from parents or grandparents. However, the American dream is becoming increasingly beyond the reach of many of the next generations. As every year, more homes will become available this Spring. It will be a solid sellers' market and strong sales prices are to be expected. Those who have been considering selling in the foreseeable future might want to capitalize on it now. We encourage you to call us to at least find out what your home might be worth. Author: Elaine Bannigan is the founder and owner of Pinnacle with over 35 years of industry leadership and expertise. She has been writing the Pinnacle Report for nearly 20 years.
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