WASHINGTON – Fannie Mae has issued a new analysis of the residential single-family home market, where it stated that: “the demand for entry-level single-family homes should remain high for the rest of the decade.”
The government-owned mortgage firm found that between 2018 and 2020, the shortage in homes increased nationally from 2.5 units to 3.8 units. The declining supply of entry-level (or starter) homes is driving the home shortage.
Fannie Mae defines a starter home as having less than 1,400 square feet. In the 1980s, 40% of all homes built were starter homes. By comparison, in 2019, only 7% of homes built were starter homes.
The influx of 27 million millennials into the housing market has pushed this shortage even further. In the period from 2018 through 2020, the COVID-19 pandemic and systemic housing trends caused a 52% decrease in the supply of homes. The combination of low supply and high demand resulted in a 12% increase in home prices.
As younger workers continue to enter the market, the demand for starter homes will continue to rise. Fannie Mae anticipates that affordability will remain an issue for the next decade, “especially when it comes to down payments.”
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