Clear Capital: 2015 could be a banner year for lower and mid-tier housing

Number of potential move-up buyers steadily increasing

An optimistic Clear Capital’s Home Data Index market report argues that 2015 could be a transitional year where full buyer momentum in the low and mid tiers reinforce a strong housing recovery.

“We continue to observe the growing price performance gap between the top and bottom segments of the market,” says Alex Villacorta, vice president of research and analytics at Clear Capital. “The rate of appreciation for top tier homes is stalling, which is a more direct reflection of waning fair market demand.  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.

“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. The hope is that strength in the low and mid tiers help restore confidence in a stable housing market, and traditional homebuyers re-engage,” he said. “The next phase of the housing recovery is dependent on healthy demand from this segment.”

Clear Capital’s report says that sustained national price growth in the low tier segment, once driven by investor activity, is good news for first-time homebuyers. Also encouraging, the report says, the number of potential move-up buyers, once locked into underwater mortgages, has been steadily increasing.

“The recent rise in home prices continue to bring more homeowners out of negative equity. With more equity to play with, mid tier homeowners could move-up, creating more opportunity and driving healthy demand in the low and mid tiers of the market,” the report says. “The top tier gives way, extending more opportunity to traditional buyers. 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.” Year-over-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. January data also reveals the low tier holding on to double digit gains year-over-year at 10.2% and healthy quarter-over-quarter gains of 1.5%.

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 instills confidence in mid tier homeowners, motivating them to move-up to the top tier. In turn, this opens up more opportunity for low tier homeowners to move-up to the mid tier,” the report. “Creating new opportunity in the low tier could entice potential first-time homebuyers to enter the market. This domino effect could be the catalyst for balanced demand across all sectors of the market.”

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