Hope for First-Time Homebuyers? More Small Homes Hitting the Market

For much of the year, one of the common concerns among would-be homebuyers is that there are simply not enough homes on the market. It looks like there might be a bit of a light at the end of that tunnel, especially for first-time homebuyers.

According to a new report from Realtor.com, the number of homes hitting the market rose in July, marking the fourth month in a row that new listings have increased.

Per the report, new listings increased by 6.5% in July over the same month last year.

However, the recent increases have not been enough to make up for the fact that overall inventory is still running well behind last year. According to the report, the total number of homes for sales was down 33.5% in July compared to July 2020.

But there appears to be some silver lining in that cloud. “While inventory is still lower compared to last year, the rate of decline is improving, especially at more affordable price points,” Realtor.com said in the report. “If this trend continues, there could be some relief on the horizon for first time buyers looking for smaller homes.”

As the report noted, there is some definite improvement in the smaller home segment.

According to the report, the share of new listings that are between 750 and 1,750 square feet increased from 30.2% in July 2020 to 36.3% in July 2021, meaning that more small homes are hitting the market.

Meanwhile, the share of new listings between 3,000 and 6,000 square feet decreased from 24.2% to 20.1%.

"July housing trends show a market still working its way back toward some version of normal. The feverish pace of home sales is beginning to follow historical seasonal patterns, while new listings grew at an unusually high rate for the summer months, further helping the inventory crunch," Realtor.com Chief Economist Danielle Hale said.

"This is shifting the housing market balance in a more buyer-friendly direction, but buyers may not see as much price moderation as suggested by the national trend because it's partly attributed to a shift toward smaller homes for sale,” Hale added. “Still, if these changing inventory dynamics continue, we could see a wave of real estate activity heading into the latter part of the year."