The housing market's growing schism

by Ryan Smith10 Mar 2016
There’s a growing schism in the housing market: lower-priced homes are selling in the blink of an eye, while expensive inventory piles up.

The number of homes for sale below $100,000 dropped by 8.6% year-over-year in January, according to the National Association of Homebuilders. Meanwhile, the number of homes for sale above $1 million spiked by 15%. And price bands in between those benchmarks show similar trends, according to the Wall Street Journal; the lower the price, the smaller the growth in total number of homes on the market.

Economists say the trend is the result of a number of factors, according to the Journal. Lower-priced homes are getting snapped up by first-time buyers, who are coming to the market as it recovers from the housing bust and mortgages are still cheap. High-end buyers, meanwhile, are holding off, likely because of the stock market struggles this year.

Both ends of the spectrum have their disadvantages. First-time buyers may find it difficult to even find a home due to tight supply.

“In certain price points, it’s really tough for buyers right now,” Los Angeles real estate agent Alec Traub told the Journal. “There’s limited inventory and lots of demand.” Meanwhile, Traub said, sellers of high-end homes may find that “things sit on the market a little longer.”

Phoenix real estate agent Cami Elliott told the Journal that she recently worked with a buyer who wanted a home for about $750,000 and had more than 45 to look at. Had the buyer been looking for a price point closer to $400,000, Elliot said, there would have been only three or four homes to choose from.

The shortage of lower-priced homes is due in large part to builders’ reluctance to tap into the starter-home market, the Journal reported. In 2015, the size of the average home rose to 2,720 square feet, according to the NAHB.
But Barclay’s analyst Stephen Kim told the Journal that more builders will be driven to construct cheaper homes as the high-end market stalls.

“If you continue to see first-time home buying growing faster than the industry overall, it will happen,” Kim said. “It’s only a matter of time.”