Amid Low Inventory, U.S. Homes Sell At Fastest Pace In A Decade

AUDIE CORNISH, HOST:

If you've got a weekend of open houses ahead of you, you're not alone. The National Association of Realtors says in the first quarter of 2017, homes sold at the fastest pace in a decade. The problem is there aren't enough homes for all of those potential buyers, and that means home prices are rising even faster. Here to talk about what's going on in the housing market is Chris Herbert. He's the managing director at Harvard's Joint Center for Housing Studies. He speaks to us from Cambridge, Mass. Welcome to the program.

CHRIS HERBERT: It's great to be here.

CORNISH: So first, tell us who's out there buying right now.

HERBERT: Well, there are a lot of different folks out there buying, but for the most part, what we're seeing are younger households, the millennial generation, who are starting to come out and enter the home-buying market for the first time really in the last decade.

CORNISH: Do we know what's driving them?

HERBERT: Well, I think it's mostly the fact that the economy, which has been obviously struggling to regain its footing after the recession, is finally nearing full employment. So people have jobs. They have incomes. Now, the other thing that's held millennials back has been they've been getting married later, later to have kids. The oldest millennials are now approaching 30 or into their early 30s, and so they're hitting those life milestones. They have jobs, and so they are finally making their way into the home-buying market.

CORNISH: We're also hearing that in some of the cities where they live, rents are rising, right?

HERBERT: Rents have been rising quite a bit, but millennials have not been buying homes. They've been active in the rental market over the last 10 years. So we've seen tremendous demand for rental housing, and that's also helping tilt the calculus towards being a good time to buy.

CORNISH: So we've been talking about the demand, but what about the supply? Essentially, why are there - why does it seem to be that there are fewer homes listed for sale?

HERBERT: Well, there's definitely a hard time for builders to build a large number of homes as they did during the boom. When we think about what's happening on the real estate supply side, we can think of three L's - labor land and lending. And all of those are holding back builders from building more. There's less labor than there used to be because of - many workers have left the construction market. Land is harder to come by because of the difficulty in the entitlement process that many communities have in getting land approved for housing. And there's also less lending for builders to be able to develop lots for sale.

And with those constraints, what builders have done is they've focused their attention on the upper end of the market where they can make good profits so the land, labor and lending that they have available is more and more concentrated for luxury apartments, for high-end single-family homes, leaving fewer entry-level homes.

CORNISH: So no starter homes.

HERBERT: We haven't seen starter homes being built. There are some shoots of green, I would say, over the last year. We're seeing some builders who are starting to make an entry into that market again, and there's demand. And so I think we may see an increase in that starter market over the year to come.

CORNISH: This is a sort of broad question, but when you think about the idea of middle-class home ownership, does that still feel like a realistic goal to you today?

HERBERT: You know, I think it does, and if you look at the affordability in many markets - perhaps not in the Washingtons or the Bostons of the world - but many parts of the country, what it cost to buy an entry-level home is still within reach. So if you're living in the typical house in the country, across the country, is, you know, in the mid-200s. So you don't need to be making in the hundreds of thousands of dollars by any means to be able to afford that house. You can be making $50,000 to $75,000 and still afford to buy that home in most market areas.

But you still have to qualify for a mortgage. You still have to have enough money for a down payment. Saving for that down payment has been getting harder because more people are coming out of school with student loans that they have to pay off. Because rents are higher, that's slowing them down from making those savings. So getting over that down payment hump has been harder. Qualifying for a mortgage has been harder. But if you can solve those problems, people do have the income, and for the most part, I think we still see the interest in buying a home.

CORNISH: Chris Herbert is the managing director at Harvard's Joint Center for Housing Studies. Thank you so much for explaining it to us.

HERBERT: My pleasure, Audie.

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