California Starter Homes in Short Supply in 2021, But There’s Hope

Planning to buy an entry-level starter home in California in 2021? If so, you’ll need to be patient and persistent with your house-hunting efforts. California starters homes are in short supply right now. We’ve explained the reasons for this below.

That doesn’t mean it’s impossible to find an entry-level home in your area. It just means you might have to work a bit harder to accomplish that goal.

But there might be some hope on the horizon, from an inventory standpoint. Recent reports and surveys suggest we could see an increase in the number of starters homes hitting the market later in 2021 and into 2022.

California Starter Homes Still in Short Supply

It’s hard to find an entry-level starter home in California right now. Tight inventory conditions and stiff competition have challenged home buyers for the past few years, and those conditions actually intensified during the pandemic.

The lack of starter homes isn’t just a problem for California, either. It’s a national trend. All across the country, first-time buyers are having a hard time finding suitable entry-level houses that fall within their budgets.

There are several reasons for the ongoing (and frustrating) shortage of starter homes in California and nationwide. For one thing, there isn’t enough construction taking place today to meet the demand from buyers. Also, a lot of homeowners who might have otherwise sold their homes over the past year held back due to COVID.

Earlier this month, researchers from Freddie Mac published a housing market report that focused on the nationwide inventory shortage. According to that report, entry-level homes at the lower end of the pricing spectrum are particularly hard to find in 2021.

To quote the May 2021 report:

“The main driver of the housing shortfall has been the long-term decline in the construction of single-family homes. That decline has been exacerbated by an even larger decrease in the supply of entry-level single-family homes, or starter homes.”

To put it in numbers: Back in the 1980s, entry-level homes smaller than 1,400 square feet made up roughly 40% of total housing construction. By 2020 that percentage had dropped to around 7%. In other words, there are far fewer entry-level houses being built today, compared to previous decades.

More Inventory Could Be Coming in 2021 – 2022

The ongoing supply shortage has made it harder for home buyers to find starter homes in California. But there may be some hope on the horizon. Recent real estate reports and homeowner surveys suggest that we might see more entry-level homes coming onto the market later in 2021 and into 2022.

An April 2021 report from Realtor.com showed that some homeowners who were reluctant to list their homes in the past are now more willing to do so. This could lead to a gradual rise in housing market inventory, through 2021 and into 2022.

The Realtor.com report offered some good news for first-time buyers planning to buy a starter home in California later this year or next. To quote the report:

“Furthermore, 58% of the homes that owners plan to list this year are valued below $350,000, which should provide some relief for first-timers who have had trouble breaking into the market.”

By California pricing standards, the sub-$350,000 bracket mentioned above includes entry-level homes. That’s the range where first-time buyers tend to shop. Realtor.com’s senior economist George Ratiu said that an increase in housing market inventory (especially among starter homes) “will begin to relieve buyers’ challenges in a very competitive market.”

Additionally, a May 2021 report from the California Association of Realtors (C.A.R.) showed that the number of houses for sale in the state rose 7.4% from March to April of this year. The group said they expect that figure to rise further over the coming months, if the real estate market “follows its typical seasonal pattern.”

Summary of Key Points

We’ve covered a lot of data and information in this housing market update. Here’s a summary of the most important points:

• Starter homes in California are currently in low supply.
• First-time buyers will have to be patient and persistent in their housing search.
• Fewer entry-level homes are being built these days, compared to past decades.
• Recent reports suggest more inventory could hit the market later in 2021 – 2022.
• The ongoing supply shortage affects much of California, as well as other U.S. states.

Need mortgage financing? In a competitive real estate market, it’s important to have your financing lined up ahead of time. We can help. Located in the Bay Area, Bridgepoint Funding serves home buyers all across the Golden State. Please contact us with any mortgage-related questions you have.