The growing gap between housing’s low and top tiers in the United States is expected to restore healthy demand for first time buyers and those moving up the housing ladder.
2015 has the promise of a transitional year where full buyer momentum in the low and mid tiers reinforce a strong housing recovery, according to the latest analysis report from Clear Capital.
It says that sustained national price growth in the low tier segment, once driven by investor activity, is good news for first time buyers and also encouraging is the number of potential buyers locked into underwater mortgages has been steadily decreasing.
The recent rise in home prices continue to bring more home owners out of negative equity and with more equity to play with, mid-tier home owners could move up, creating more opportunity and driving healthy demand in the low and mid tiers of the market.
‘While we are expecting price growth to moderate across all tiers in 2015, the top tier’s quarterly growth rate fell to 0.3% in the fourth quarter, where it had been holding steady at around 1% through the first three quarters of 2014,’ said Alex Villacorta, vice president of research and analytics at Clear Capital..
The report shows that year on year this tier experienced the lowest price growth rate of 3.6% among the three national tiers. At its current pace, continued moderation in the top tier could push quarterly price growth into negative territory in 2015.
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January data also reveals the low tier holding on to double digit gains year on year at 10.2% and healthy quarter on quarter gains of 1.5%. The firm believes that this divide between a healthy low tier and stalling top tier could kick off a domino effect.
Stalling prices in the top tier of the market could create the perception of a good deal. This instils 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. Creating new opportunity in the low tier could entice potential first time buyers to enter the market. This domino effect could be the catalyst for balanced demand across all sectors of the market.
Regionally, the Midwest continues to lead the growth and year on year held on to double digit gains in the low tier segment at 13.6%, while the top tier fell to 3.3%. This gap between growth in the low and top tiers was also recorded on a quarterly basis, with the low tier growing at 1.7% and relatively flat growth in the top tier at 0.5%.
The Midwest led the nation in the all tier segment, with quarter on quarter growth at 0.9%, narrowly edging the West at 0.7%. The Midwest is the only region currently seeing price appreciation in the low and mid tiers, growing concurrently above 1%.
The firm explained that a moderating top tier could incentivize mid-tier home owners in 2015 to move up, setting up the Midwest to be the first region to realize full buyer momentum across all segments.
‘We continue to observe the growing price performance gap between the top and bottom segments of the market. The rate of appreciation for top tier homes is stalling, which is a more direct reflection of waning fair market demand,’ said Villacorta.
‘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,’ he explained.
‘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,’ he pointed out.
‘The hope is that strength in the low and mid tiers help restore confidence in a stable housing market, and traditional homebuyers re-engage. The next phase of the housing recovery is dependent on healthy demand from this segment,’ he concluded.
This article was republished with permission from Property Wire.