As home price growth continues to moderate to a more sustainable pace, real estate data provider Clear Capital sees another promising trend forming: The mid-tier housing sector now has the best deals for buyers, hopefully drawing more interest to the market’s largest segment.
In its Home Data Index (HDI) Market Report for April, Clear Capital noted homes selling in the mid-tier level (priced between $95,000 and $310,000 nationally) remain 30.6 percent off their peak values, putting them lower relative to their peak than low-tier (21.5 percent off peak) and top-tier (18.2 percent off peak) homes.
Dr. Alex Villacorta, VP and chief economist for Clear Capital, says the shift reflects how market drivers have had an impact on each tier of housing.
“Looking at home price trends by tier, it’s apparent the impact of investor activity has been concentrated in the low price tier segment,” Villacorta said. “Conversely, the segment of the market that represents the middle 50 percent of all transactions is still more than 30 percent off peak values.
“This suggests that there is good price growth potential and could motivate enough buyers to sustain an overall rate of home price growth consistent with historical norms,” he continued.
Overall, Clear Capital predicts annual growth rates will continue to moderate to a more measured pace of 3–5 percent, which Villacorta calls “the new reality” of the housing market—a reality participants are still adjusting to, if March sales numbers are any indication. Still, the company remains unconcerned about spring’s slow start and even suggests a more normal rate of price growth “will help restore first time and owner occupant buyers’ confidence in the market.”
Meanwhile, at the local level, market differences paint a varied picture. Even among just the top 15 performing metros for price changes in the latest quarter, Clear Capital reports a spread of nearly 32 percentage points in distressed sale saturation (from No. 14, Chicago, at 39.7 percent to No. 15, San Jose, with 7.9 percent).
As a result, the company expects Chicago to see more demand from investors looking for deals on distressed sales, while high-priced markets like San Jose will be supported by a healthier local economy and strong appetites from owner-occupant buyers.
“To be clear, there are lots of adjustments taking place in housing markets across the country,” Villacorta said. “Everything from lender regulation, consumer confidence, investors tapering purchases, local economics, and rising home prices have forced participants to continually adjust to a market that has been anything but stable.”