IRVINE, CA—Builders finding it necessary to build more-expensive housing to generate a profit and owners of existing entry-level homes being less willing to sell are two new factors contributing to the lack of affordable housing, First American Financial Corp.'s chief economist Mark Fleming tells GlobeSt.com. In his Potential Home Sales model and analysis for October, Fleming highlighted the shortage of affordable homes for first-time buyers and its impact on the market's potential. “Sales of starter homes (homes less than $100,000) continued to decline, dropping 10.2% year over year, while sales of homes in all other price ranges increased year over year,” he said. Also, “The supply of affordable entry-level homes is not keeping up with increasing first-time homebuyer demand. The increasing shortage of affordable inventory for first-time homebuyers is preventing market activity from reaching its true potential.”

Meanwhile, Fleming reported that incomes are continuing to trend upward, “with the Census Bureau reporting that average hourly earnings have increased 2.8 % in the past year to a post-crisis high point.”

We spoke with Fleming about the main causes of the lack of affordable-housing inventory nationwide and what can be done to overcome the factors suppressing supply of this inventory.

GlobeSt.com: What do you see as the main causes of the lack of affordable housing inventory nationwide?

Fleming: There are two primary reasons for the lack of affordable entry-level homes for sale. Builders are typically building more-expensive housing because it is difficult to make a profit constructing entry-level homes, and the owners of existing entry-level homes are less willing to sell, since they fear being unable to find something to buy and, as rates increase, are financially less inclined or able to “move up.”

GlobeSt.com: Are these causes unprecedented or have they always been an issue in affordable inventory?

Fleming: These are both new dynamics in the market. Increased regulatory and zoning costs are making new housing development costlier in many markets, and the expectation of a rising-rate environment is a regime change from the prior 30-year, long-run decline in mortgage rates.

GlobeSt.com: What can be done to overcome the factors suppressing supply of this inventory?

Fleming: Faster wage growth would certainly help existing homeowners overcome the cost of increased rates. Reform of development regulations and zoning laws to encourage new construction of entry-level homes could also help increase the supply of inventory.

GlobeSt.com:  What else should our readers know about affordable inventory and its impact on the housing market?

Fleming: In my mind, this is the single most important issue today in an otherwise healthy housing market.

IRVINE, CA—Builders finding it necessary to build more-expensive housing to generate a profit and owners of existing entry-level homes being less willing to sell are two new factors contributing to the lack of affordable housing, First American Financial Corp.'s chief economist Mark Fleming tells GlobeSt.com. In his Potential Home Sales model and analysis for October, Fleming highlighted the shortage of affordable homes for first-time buyers and its impact on the market's potential. “Sales of starter homes (homes less than $100,000) continued to decline, dropping 10.2% year over year, while sales of homes in all other price ranges increased year over year,” he said. Also, “The supply of affordable entry-level homes is not keeping up with increasing first-time homebuyer demand. The increasing shortage of affordable inventory for first-time homebuyers is preventing market activity from reaching its true potential.”

Meanwhile, Fleming reported that incomes are continuing to trend upward, “with the Census Bureau reporting that average hourly earnings have increased 2.8 % in the past year to a post-crisis high point.”

We spoke with Fleming about the main causes of the lack of affordable-housing inventory nationwide and what can be done to overcome the factors suppressing supply of this inventory.

GlobeSt.com: What do you see as the main causes of the lack of affordable housing inventory nationwide?

Fleming: There are two primary reasons for the lack of affordable entry-level homes for sale. Builders are typically building more-expensive housing because it is difficult to make a profit constructing entry-level homes, and the owners of existing entry-level homes are less willing to sell, since they fear being unable to find something to buy and, as rates increase, are financially less inclined or able to “move up.”

GlobeSt.com: Are these causes unprecedented or have they always been an issue in affordable inventory?

Fleming: These are both new dynamics in the market. Increased regulatory and zoning costs are making new housing development costlier in many markets, and the expectation of a rising-rate environment is a regime change from the prior 30-year, long-run decline in mortgage rates.

GlobeSt.com: What can be done to overcome the factors suppressing supply of this inventory?

Fleming: Faster wage growth would certainly help existing homeowners overcome the cost of increased rates. Reform of development regulations and zoning laws to encourage new construction of entry-level homes could also help increase the supply of inventory.

GlobeSt.com:  What else should our readers know about affordable inventory and its impact on the housing market?

Fleming: In my mind, this is the single most important issue today in an otherwise healthy housing market.