Home Builders May Hold the Key to Addressing Texas’ Housing Shortage

July 15, 2016 | by Katie Claflin

Categories: Construction, First Time Buyer, Homeownership

Nationwide, the lack of down payment has long been the primary obstacle keeping families and individuals from becoming homeowners. In fact, Zillow issued a press release in November 2015 reporting that up to 13 percent of home purchases were only made possible through a down payment gift or loan from a friend or family member.

But as we reported in a blog post last month, there’s a new obstacle holding potential buyers back: the lack of affordable entry-level homes (also called starter homes). In addition to the Trulia statistics cited in last month’s blog post, a recent Housing Wire article reported that Fitch Ratings also found a large shortage of both new and existing homes. Fitch reported that the current supply of homes for sale is 4.7 months, with the supply for entry-level homes even lower. By comparison, the average supply of homes for sale should be about 5.5 to 6 months.

So why haven’t builders jumped at the opportunity to address the growing demand for entry-level homes? Housing Wire emphasizes that builders still have concerns over whether there are enough serious buyers to justify an increased focus on entry-level homes. TIME Magazine’s Denver Hicks explains:

“To some degree, it’s a chicken-or-the-egg situation. Are builders not catering to first-time homebuyers because the nation’s young adults aren’t likely to be purchasing? Or are young adults unlikely to be buying partly because there are relatively few homes that match their needs?”

Despite builders’ concerns, there’s good news on the horizon. The Fitch report also indicates that major builders, including DR Horton, M.D.C. Holdings, and Meritage Homes, have publicly stated that they plan to build more entry-level homes to serve younger, lower-income and first-time buyers.  Builder Magazine confirmed this trend, reporting that nationwide, the number of home builders offering entry-level homes has risen 25% in the past year.

What’s more, Builder Magazine reported that the number of builders constructing ‘move-up’ homes has also increased, with 107 of the top 200 builders indicating that move-up homes comprise 50% or more of their total home constructions. The increase in move-up home inventory could increase the availability of entry-level homes, with homeowners currently in entry-level homes moving up to larger homes.

Adding more entry-level and move-up homes to the market could be the solution that clears the home buyer “gridlock” considered by Trulia to be the most important factor keeping home prices unaffordable for younger, first-time and lower-income buyers.

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On the House blog posts are meant to provide general information on various housing-related issues, research and programs. We are not liable for any errors or inaccuracies in the information provided by blog sources. Furthermore, this blog is not legal advice and should not be used as a substitute for legal advice from a licensed professional attorney.