Our CoreLogic Home Price Index has reported a strong rebound in prices from the trough in March 2011. The national index has increased by more than 60% from its nadir with lower-priced homes experiencing much faster appreciation: Comparing homes priced 25% below the median price in their locale with homes priced 25% above the median, the less expensive homes have had price growth that has been nearly twice as rapid through June 2019.
Two causes of the imbalance in price growth across value tiers are a reduced supply of and increased demand for the lowest-priced homes. The net result of these forces is a low months’ supply for sale for the less expensive homes, the homes that entry-level buyers and investors are generally looking to buy. (Figure 1) In part, these trends reflect existing homeowners staying in their homes longer, thereby reducing the flow of homes listed for sale, and increasing numbers of millennials beginning to purchase their first home, accelerating demand for starter homes.
Two factors have added to the demand and supply imbalance for lower-priced homes. One is that investors are a much larger share of buyers than had been the case. (Figure 2) During 1999 to 2003, investors were 10.7% of the buyers of entry-level homes, but this had risen to 19.2% in 2015 to 2019. A second reason is the dearth of new construction of lower-priced homes. In 1999 to 2003, 3.8% of entry-level sales were new construction, but by 2015 to 2019 this had fallen to only 1.8%.
The lack of new-building supply for lower-priced homes has occurred throughout the U.S. In four metros that had some of the largest number of new home sales during the last year, new construction generally added about 20% or more to the supply of higher-priced homes, but added only about 3% to the supply of lower-priced homes. Limited supply and rising demand for lower-priced homes, relative to premium-priced homes, explains much of the difference in price growth.
For more on CoreLogic’s perspective on the U.S. housing economy please visit the insights area of corelogic.com.
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