Pent-Up Demand Grows
"The rate of appreciation for top tier homes is stalling, which is a more direct reflection of waning fair market demand,” says Alex Villacorta, vice president of research and analytics at Clear Capital. “While this is a concerning development, there is a silver lining. The moderating upper tier may give traditional buyers a moment to catch their breath, and entice move-up buyers to enter this segment of the market. The ripple effect of opening up inventory all the way down the price spectrum could provide opportunity and motivation across all segments, including first-time buyers, to enter the marketplace.”
The lower and middle-range ends of the housing market is stabilizing, allowing traditional home buyers to re-emerge. “The next phase of the housing recovery is dependent on healthy demand from this segment,” Villacorta says.
The lower-end of the housing market was once driven mostly by investor activity, but now doors are opening for first-time home buyers to break in. Also, as the number of underwater mortgages steadily decreases, home owners in the mid-tier of the home pricing segment can finally trade up to a larger, more expensive home.
Lower-end properties have been outpacing price growth in the luxury market, Clear Capital reports. The low-tier has posted double-digit gains year-over-year of 10.2 percent, compared to the top tier, which saw the lowest price growth rate among the three tiers, at 3.6 percent year-over-year.
“This divide between a healthy low tier and stalling top tier could kick-off a domino effect,” Clear Capital notes in its report. “Stalling prices in the top tier of the market could create the perception of a good deal. This instills confidence in mid-tier home owners, motivating them to move-up to the top tier. In turn, this opens up more opportunity for low tier home owners to move-up to the mid tier. … This domino effect could be the catalyst for balanced demand across all sectors of the market.”
The Midwest is leading the pack, according to Clear Capital. The Midwest posted double-digit gains in the low-tier segment at 13.6 percent, while seeing its top-tier of the market fall 3.3 percent with prices. The Midwest is the only region currently seeing price appreciation in the low and mid tiers, growing above 1 percent.
As such, Clear Capital economists are predicting the Midwest to be the first region in U.S. to realize full buyer momentum among first-time and move-up buyers, due to its moderating top tier.