Photo: Payton Chung/Flickr
Those looking to break into the US housing market this season for the first time will find little in the way of encouragement from Zillow’s Q1 2016 Market Report.
“Faced with rapidly appreciating home values and a dwindling inventory of homes for sale in the critical entry-level and mid-market home segments, first-time and move-up home buyers — typically the housing market’s bread-and-butter — are likely in store for a tough spring home shopping season,” writes Svenja Gudell, the online real estate marketplace’s chief economist and author of the report.
By Zillow’s count, the number of homes on the market in the US this March dropped 5.9 percent from 12 months earlier, with greater declines in more-affordable segments of the market. Available housing stock was down 10.4 percent in both the market’s bottom and middle thirds, Gudell points out, while the uppermost tier registered a more muted decline of 1.9 percent.
“This is leading to a situation in which the majority of homes for sale in many markets are more expensive homes not typically sought by budget-conscious entry-level and younger buyers,” Gudell observes, noting this is the case in every one of the country’s 35 biggest markets.
Nationwide, there were 596,167 top-tier homes available in March, while potential buyers had 357,898 middle-tier dwellings and 308,647 bottom-tier abodes to choose from, on a seasonally adjusted basis (see the chart above for local market breakdowns).
At the same time, home prices are increasing. And as with inventory levels, the cheaper corners of most of the top 35 markets are seeing the sharpest changes as buyers compete for a more limited selection of these homes, said the report.
“Home values are rising the fastest among entry-level and mid-market homes in a large majority of the nation’s biggest housing markets,” explains Gudell, who notes gains in employment and household formation are also sparking demand and subsequent price growth.
“Home values in the bottom tier are growing faster than the other two tiers in 18 of the nation’s 35 largest metro housing markets, and middle-tier growth is outpacing bottom and top-tier growth in another eleven,” she notes.
According to the latest Zillow Home Value Index reading, which is based on estimated sale prices and was included in the report, US median home values climbed 4.8 percent in March compared to that month a year ago. The index now pegs the median value at $186,200.
“While annual growth in this range is largely sustainable and not much to worry about on its own, this uptick in growth bears watching as the spring home shopping season heats up,” says Gudell.
Double-digit price growth was seen in 10 of the 35 biggest American markets, with Denver’s 15.7 percent appreciation leading the way, ahead of Portland (14.8 percent), and Dallas (13 percent).
Last month, househunters searching for properties in the top third of the market had the best chance of finding a home that had come down in price.
The share of these listings grew 1.6 percentage points from March 2015 to last month. For middle-tier listings, the share increased 0.4 percentage points and 0.5 percentage points for the most affordable homes.
“In other words, buyers looking for the most expensive homes will find somewhat softening prices, a relatively larger selection of homes to choose from, and more limited competition this spring,” says Gudell. “Yet another reminder that it pays to be wealthy,” she concludes.