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First-Time Buyers Face Housing Crunch In Big Cities

MICHEL MARTIN, HOST:

This is ALL THINGS CONSIDERED from NPR News. I'm Michel Martin. We're going to start the program today by taking a look at housing in this country. In a few minutes we're going to speak with the Secretary of Housing and Urban Development, Julian Castro, about a controversial new directive he's laid down that's intended to help people with criminal records get access to housing.

But first we want to take a look at an interesting trend affecting millennials and other first-time home buyers. Now, you might assume that more young people are in a better financial position to join the ranks of home owners - employment is up, mortgage interest rates remain low. It's even a lot cheaper to fill up your gas tank. So, as we said, you might assume it's smooth sailing for people who've been shut out of the market.

Only there's a big problem if you live in one of several major metropolitan areas nationwide. There are few houses available for the first-time buyer in cities like Dallas, Denver, Seattle and Atlanta. There isn't a lot of inventory and the houses that are coming on the market are being snapped up or are the subject of bidding wars. In some cases, this housing crunch is happening in cities that did not go through the housing boom and bust just a decade ago. We wanted to find out what's going on so we called one of the big providers of housing data Zillow. Skylar Olsen is a senior economist at Zillow, and she's with us now via Skype. Thank you so much for joining us.

SKYLAR OLSEN: Yeah, thank you for having me.

MARTIN: So, what is the big picture here? Is this a situation where there just isn't any inventory? I mean, we keep hearing that there was this big wave of foreclosures. We know that there are - you know, we've all seen the pictures of kind of empty houses just waiting for somebody to buy them, looking, you know, sad and forlorn. So why is it that there's so little inventory in these areas?

OLSEN: Inventory is extraordinarily low, especially relative to the time where it felt abundant because we had a lot of distress housing coming out on the market. So housing is about maybe half as available as it was five years ago. But, you know, we were talking about tight inventory last year. And this year, it's 6 percent lower still. If I'm going to target entry-level housing - so, you know, ones that first-time buyers or millennials might be more interested in or the level that they can actually afford, right? It's 10 percent lower than last year.

MARTIN: You know, I ask you about inventories, if this was solely a supply problem. But I wonder whether it's also an affordability problem. For example, I was just looking at some data from RealtyTrac, which provides data and it said that three-quarters of real estate markets in U.S. counties larger than 100,000 people are less affordable now than a year ago and that home prices have outpaced wage growth in 94 percent of those counties since home prices hit bottom in each of those locations. So what I was wondering is is it that home prices are escalating faster than people's wages?

OLSEN: You know, our numbers show very similar things. But flip it on its head, you know, kind of look at your other option when you're renting as well and we can tell the same story. So rents have far outpaced the growth of income as well, particularly in the last two years. So let's say you're a millennial trying to save for a down payment. You know, it's very difficult to do so when you're paying such a large rent burden to actually build the down payment that you need to compete in a competitive market where someone might be able to put, you know, 20 percent or even all cash down on homes. And in some markets, mortgages are more expensive now than they were in pre-bubble years despite the fact that interest rates are at record lows over the past six years.

MARTIN: And why is that?

OLSEN: It's just home values have grown so, so quickly. So those markets are places like San Francisco, San Jose and LA.

MARTIN: Well, who can afford all these houses then? Is this a phenomenon of places with a bubble? Like, for example, there are sort of unique factors like, for example, in Silicon Valley, where wages are quite high.

OLSEN: You know, nationally when we hear, you know, or ask questions, you know, are we in a bubble? Not nationally, no. But if I target places where home values have increased so quickly like the ones we just mentioned, you know, we are getting to a point where when interest rates rise, houses are going to feel even more prohibitively expensive.

But it's always important to remember, you know, the metros that we're talking about there - San Francisco, San Jose, L.A., you know, we can add other metros that have also kind of reached those limits, right, where affordability is starting to become kind of a big issue. These are all great job centers.

MARTIN: You're in Seattle. So is Seattle one of those hot markets?

OLSEN: Yeah.

MARTIN: OK.

OLSEN: Seattle is definitely one of those hot markets.

MARTIN: Yeah, for all kinds of reasons. And so can you give me an example of what first-time homebuyer would be facing where you live?

OLSEN: In the Seattle metropolitan area, if I'm talking entry-level homes, homes are 30 percent less available this year than last year. That's basically cuts the available housing for a millennial buyer by third, which is incredibly tough when you're also in a place that's experiencing record high population growth. So the demand for these places is extraordinary. And you're facing four, five, six bids to win a home, you might actually have to place bids on several homes before you win.

MARTIN: That's Skylar Olsen, senior economist with Zillow. Thank you so much for joining us.

OLSEN: Yeah, thank you so much for having me. Transcript provided by NPR, Copyright NPR.