Lower Priced Homes Expected To Outperform In 2015

The lower end of the residential real estate market in the United States is set to outperform other property sectors in 2015. Most housing markets will see declining …

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The lower end of the residential real estate market in the United States is set to outperform other property sectors in 2015.

Most housing markets will see declining gains at a national and regional level, but the low tier segment of the market nationally is forecasted to grow at around 3%, according to the latest property report from Clear Capital.

The index report shows that in December the low tier segment, that is homes selling for under $95,000, saw double digit gains of 10.4% nationally. But that too is set to slow.

The report says the low tier of the Midwest could see growth of 7%, which is more than double that of the national forecast for this segment, and more than 5% ahead of the West at 1.7%.

Price growth in the Midwest is expected to outpace the nation on all tiers by 1.6%, nearly double that of the country as a whole in 2015. A cluster of metro areas that are projected to see some of the highest price growth over the next year are also located in the Midwest.

Ohio leads the pack with the highest number of metros at the top of the firm’s forecast with predicted price growth in Columbus, Dayton, Cleveland and Cincinnati ranging from 2.2% to 4.5% in 2015.

Dayton ended 2014 with gains in median home prices of 16.5% over the year. This is a drastic increase for a metro market that saw a price decrease of 2.3% just a year ago.

Cincinnati also showed strong signs of growth at the end of 2014, with median sales price increasing by 9.1% in December, and an increase of 17.2% from 2013.

Double digit gains are set to cease. While the West continued to outshine the other three regions with 8.7% growth at the end of 2014, this is more than a 10% drop from where the region ended 2013 with 18.9% growth. T

The Midwest followed close behind with 7.7% price growth over the year in December 2014, down just 2.3% from 10.1% a year ago. The South and Northeast finished 2014 with 6% and 2.9% price growth, respectively, with these regions also seeing moderation to price gains from 2013.

At the national level, December home price growth ends 2014 at 6.4%, down from 10.9% a year ago, with continued moderation in quarter over quarter gains throughout 2014, ending 2014 at 0.9%.

The firm is predicting another wait and see year and expects continued moderation for 2015. ‘A year ago, we forecasted the start of a more mature recovery with year-end gains between 3% to 5% for the nation, and with price appreciation moderation one of the only consistent trends in 2014,’ said  Alex Villacorta, vice president of research and analytics at Clear Capital.

‘In 2015, we will see the natural progression of the housing market regressing back to normal rates of growth. Current price trajectories suggest that price growth at the national level will continue to moderate to 1% to 3% with distressed saturation still above historical norms in some of the top 50 metros,’ he explained.

He pointed out that recent moderation in home prices and decreases in down payment requirements are increasing housing affordability in a time where rental demand is increasing and homeownership rates are at a long run low. The market will also have to contend with the challenges of stagnant wage growth, however, the increased affordability could encourage demand from homebuyers in the key fair market segments.

‘Overall 2014 was a good year with prices up virtually across the board, though the rate of price growth has declined consistently since the year began. As we turn the calendar, we expect this trend to continue. Nearly all markets have experienced significant turbulence over the last decade and are only now showing signs of stabilization. This stabilization is likely to persist through the first half of the year until the market’s recovery strength can again be measured going into the traditional buying season,’ said Villacorta.

‘Locally, however, stabilizing home price growth and improved job numbers could reignite consumer confidence from traditional home buyers, setting up historically distressed markets like Ohio and the Midwest for success in 2015. The West had another standout year, with six metro areas in California alone returning a combined, increased average of 10.3% over the year,’ he explained.

‘The West’s performance will continue to wane and likely be eclipsed, on a percentage basis, by the Midwest, growing at 2.8%, compared to the West at 1.5%. The Midwest began rallying in 2014, and was neck and neck with the West in the most recent quarter at 1.1% and 1% respectively. The forecasted 2015 performance will come as no surprise to those with their eyes on market level performance in the region,’ he added.

This article was republished with permission from Property Wire.

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