June 13, 2019
Higher and Lower Ends of the Housing Market See Different Paces of Price Appreciation
The American Enterprise Institute released its report on the AEI Housing Market Indicators on January 28th, which is a briefing on national mortgage risk (among other risk measures) in the American real estate market as of November 2018. Among its key findings were that the high-end and the entry-level ends of the real estate market were seeing quite different paces of home-price appreciation, and that mortgage risk had increased substantially in November—indeed, that purchase loan indices of every sort had either set new records or matched their all-time records.
The appreciation numbers, which were “strongly bifurcated,” saw entry-level home prices appreciating at 5.3 percent year-over-year. Prices for properties in the highest tier appreciated at a rate of only 1.5 percent. It is likely this is a result of the long-term seller’s market that is only now beginning to cool down to some degree. Higher home prices became concentrated in the lower end of the market because there is a higher concentration of potential home-buyers in that set, and the inventory has been squeezed for that cohort as a result of slowing construction of new homes due to international tariffs on materials and higher wages in the labor market. This heightened demand resulted in more offers on any given property, with the effect of driving prices upward. And this trend has re-gained steam as mortgage rates have begun to drop again, making credit readily available to entry-level buyers and enticing these potential buyers back into trying their luck at the market.
Demand for high-end housing, on the other hand, has not increased substantially, due to, again, a lower buyer-base and the tendency for builders to construct higher-end properties during times when materials and labor are more expensive, as a way to potentially recoup costs—making that sort of housing relatively plentiful.
The effect, in the end, is that potential entry-level buyers are not able to enter the market after all, despite the low mortgage rates. This may well add to the frustration with the market that the Millennial generation is famous for adopting.
If you do manage to locate that perfect starter home, our team here at Topouzis & Associates, P.C. is here to do everything we can to be absolutely sure you are conveying and purchasing title clear of judgments and defects. And, yes, we help our clients put into place a good policy of title insurance to make certain they don’t get surprised by any nasty lurking issues with a property. Contact us if you’d like us to do this for you.
