First-time homebuyers are finally ready to jump into the market. They’ve met tougher mortgage qualifying standards in recent years, they’ve saved up for down payments, they’ve done their homework and know what they can afford.

But can they actually find a home?

The biggest problem facing first-time homebuyers these days is the low inventory of homes for sale in the starter home price range.

“That’s a real problem,” says Nela Richardson, chief economist for Redfin, a national real estate brokerage. “Just because you got financing doesn’t mean you get a home. It’s a hard market.”

According to the National Association of Realtors, the number of homes for sale nationwide at the end of November 2016 was 9.3 percent lower than it was a year earlier, and the year-over-year totals have been dropping for the last 18 months. At the current rate of home sales, the inventory is only enough to last four months – short of the six-month inventory for a balanced market of homebuyers and available homes.

[See: The 20 Most Desirable Places to Live in the U.S.]

And these numbers are for all home sales. The inventory of homes for sale at the lower price ranges is even smaller, and the squeeze is particularly acute in cities such as San Francisco, Seattle, Denver and Boston. But even in other cities, popular neighborhoods can be a challenge.

“We haven’t seen an increase in the starter-level inventory since 2009,” Richardson says. “That’s been the biggest problem in the housing market recently.”

An analysis by the real estate portal Trulia found that only 24.8 percent of the homes for sale at the end of 2016 were in the starter price range (defined as the lower third of all home values per market), and that number was 12 percent lower than at the close of 2015.

A number of trends are keeping down the number of homes for sale in lower price ranges:

Fewer single-family homes are being built, especially starter homes. Builders cite tight credit, difficulty finding land and, most important, a severe shortage of labor. While the National Association of Home Builders expects to see 10 percent more single-family homes built in 2017, the number of new homes is still likely to fall short of demand. According to U.S. Census Bureau data, the median price of new homes sold in November 2016 was $305,400, and the average price was $359,900.

People are staying in their homes longer. From 1987 through 2008, Americans stayed in the same home for six to seven years. But that number has been rising, and according to NAR data, the median time Americans lived in the same home was 10 years in 2016. “That’s why we think that this inventory problem is persistent,” Richardson says. “We’re seeing that people are staying in their houses longer.”

Investors are holding on to their starter homes. The percentage of investors as a share of existing U.S. homebuyers has declined as prices have risen. Investors bought 12 percent of the existing homes sold in November 2016, down from 16 percent in the previous year, according to NAR data. But with rents at an all-time high, investors aren’t selling the inventory they already hold, and they are more active in lower price ranges, Richardson says.

While the low inventory doesn’t make it impossible to buy a home this year, it makes things more challenging. Buyers need to be prepared.

[See: Weird Home Features That May Confuse Homebuyers.]

“You’re going to lose out on a few homes,” says Ray Rodriguez, regional mortgage sales manager at TD Bank in New York. “You might have to temper your wants. ... I think you just have to be more patient and know that it could be a frustrating process.”

Here are seven tips for buying a home in a low-inventory market:

Get your mortgage before you find a home. Meet with a mortgage broker before you even look at homes. Make sure your credit is what it should be and you provide all the necessary financial information for underwriting before finding a home and making an offer. “All the bank has to do is fill in the sale price,” Richardson says.

Start early. It may take longer to find a home, plus you need to pinpoint exactly what you want so you’ll know it when you find it. Chicago-area agent Richard Harty, broker-owner at the Harty Realty Group in Highland Park, Illinois, closed a deal this month for a couple who began searching for a home in July. They started looking in several neighborhoods, then zeroed in on the area they wanted – which they identified during their long search. When they finally found a home, “They were confident they were buying in the right neighborhood,” Harty says.

Have your own real estate agent. In a tight market, you need someone who is advocating for you, not juggling loyalties to both you and the seller. Using an agent usually does not cost the buyer anything, and buyers may want to sign a contract with an agent to cement that loyalty. “Make sure that somebody’s representing your interest,” Harty says

Line up your professionals early. Once you find a home, you will need to move quickly on inspections and closing steps. Line up inspectors and closing agents or attorneys when you start looking.

Be ready to move quickly. Richardson predicts that buyers will move even faster than they did last year, when homes stayed on the market an average of 52 days, and that was the shortest amount of time since Redfin began collecting data in 2009. When you find a home you like, it’s often smart to tour it the day it goes on the market and make an offer immediately.

Start saving money. If you end up competing with other buyers for a home, an offer with a higher down payment often looks better to a seller. You also can offer a higher earnest money deposit to be competitive. “Put yourself in the best possible position,” Harty says. “It just shows a stronger candidate. The strength of your offer really is important.”

[See: The Best Apps for House Hunting.]

Don’t buy a house you don’t want. While you may end up buying a home that doesn’t have every feature you wanted, don’t buy a home you’re not happy with. “At the end of the day, once you close, it’s yours,” Harty says. “There is low inventory, but there’s more homes coming to the market every day. It comes down to your gut. At the end of the day, you just have to know that you’ll be happy.”

Tags: real estate, housing, millennials, money, housing market


Teresa Mears writes about personal finance, real estate and retirement for U.S. News and other publications. She was previously the real estate blogger for MSN Money and worked as the Home & Design editor for The Miami Herald. During her journalism career, she worked on coverage of immigration, religion, national and international news and local news, serving on the staffs of The Miami Herald, The Los Angeles Times and the St. Petersburg Times. She has also been a contributor for The New York Times and The Boston Globe, among other publications. She publishes Living on the Cheap and Miami on the Cheap. Follow her on Twitter @TeresaMears.

Recommended Articles

Tips to Make Your Home Instagram-Worthy

Devon Thorsby | Aug. 16, 2019

Inspire social media envy and excitement with these design and photography tips.

7 Fall Decor Tips for Your Home

Deanna Haas | Aug. 16, 2019

Autumn provides home sellers with unique opportunities for staging and decorating. But does fall decor actually help sell your home, or make it more difficult to attract buyers?

The Biggest Cities in the U.S.

Devon Thorsby | Aug. 14, 2019

These cities have the largest populations in the country, with amenities to match.

Smart Home Upgrades to Raise Home Value

Steven Gottlieb | Aug. 12, 2019

Smart home technology may wow homebuyers, but they may not be willing to pay more for the latest upgrades.

The Guide to Closing Costs

Devon Thorsby | Aug. 9, 2019

Here's a breakdown of what buyers and sellers can expect to pay when closing on a home sale.

The Best Places on the West Coast

Devon Thorsby | Aug. 7, 2019

Discover metro areas near the Pacific Ocean that offer residents the most.

10 Secrets to Selling Your Home Faster

Teresa Mears, Devon Thorsby | Aug. 2, 2019

Consider these low-cost ways to sell a home fast by attracting buyers with great photos, fresh curb appeal and social media buzz.

The 25 Best Places to Find a Job

Devon Thorsby | Aug. 1, 2019

These metro areas have the strongest job markets in the country.

5 First-Time Homebuyer Mistakes

Robin Kencel | July 30, 2019

Keep an eye out for these details in the homebuying process to keep the right mindset and avoid buyer's remorse.

The Best Places to Live for Singles

Devon Thorsby | July 25, 2019

These metro areas offer affordable, enviable living for people who are looking to make a move solo.

What to Expect When iBuyers Sell Homes

Dima Williams | July 25, 2019

Eventually, iBuyers become iSellers. Here's what homebuyers should know before making a deal.

Why Days on Market Matter for Home Sales

Deanna Haas | July 24, 2019

What’s really measured by days on market, and the implications this figure has for homebuyers and sellers alike.

How to Refresh Your Home on the Market

Wendy Arriz | July 23, 2019

Here are five things you can try to attract the right buyer to your home before you drop the asking price.

30 Most Fun Places to Live in the U.S.

Devon Thorsby | July 19, 2019

Take advantage of what these metro areas have to offer for your free time.

5 Things About Renter Laws in Florida

Devon Thorsby | July 17, 2019

Whether you're an investor or a renter, know your rights and responsibilities when it comes to residential leases in the Sunshine State.

Why a Home Floor Plan Matters

Steven Gottlieb | July 16, 2019

Not all square feet are created equal when it comes to your home's layout.

Packing Tips for Moving to Your New Home

Devon Thorsby | July 12, 2019

Prevent a moving-day disaster with these expert packing tips.

Living Room Renovation Ideas on a Budget

Devon Thorsby | July 10, 2019

Give your living room a personal touch with these simple remodeling ideas that won't break the bank.

Should You Get a Swimming Pool?

Lisa Larson | July 8, 2019

Before you call up a local pool installer, consider the costs, hassle and potential added value that a pool could bring.

Best Places to Live in North Carolina

Devon Thorsby | July 5, 2019

Which Tar Heel State metro area meets your needs for cost of living, job market and quality of life?