U.S. Housing Market Could See Increasing Demand from First-Time Home Buyers in 2015

Although, there is currently a growing bifurcation separating the low-end and premium housing markets in the United States, this phenomenon is expected to be a boon on a broader level, satiating demand and making it healthy, especially for first-time buyers and those who want to upgrade to a pricier home.

New data by Clear Capital suggests that 2015 may be a “transitional year” where buyer momentum in both low and middle tiers should buttress the U.S. housing market’s broader recovery. The firm’s analytics go on to add that price appreciation in the lower tier, which was once predicated on investor activity, should actually be good for first-time home buyers. Clear Capital also noted that the rise in home values should benefit potential home buyers currently “underwater” in rebuilding their equity, as well as mid-tier homeowners, who should have a better-stocked war chest as they hope to move up to a higher-tier home. All these variables, said Clear Capital, should boost demand in the crucial lower and middle tiers.

First-Time Home 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 percent in the fourth quarter, where it had been holding steady at around 1 percent through the first three quarters of 2014,” said Clear Capital vice president of research and analytics Alexander Villacorta, providing statistical evidence to back up the firm’s forecasts for 2015.

Clear Capital’s data also indicates that the premium tier experienced its lowest annual price appreciation among the three national tiers (low, mid, upper), at a very reasonable 3.6 percent year-over-year. As price appreciation continues to ease, quarterly price growth may actually show negative readings sometime this year.

Conversely, the lowest strata still had double digit price gains year-over-year at 10.2 percent, with quarter-over-quarter gains at 1.5 percent. One interesting hypothesis made by Clear Capital is the possibility of a “domino effect” caused by the decreased bifurcation between a bullish low tier and a moderating top tier. As premium tier home price increases are slowing down, this could ostensibly be a good deal for potential buyers, thereby giving mid-tier homeowners the impetus they need to “level up” and become top tier homeowners. Low tier homeowners, on the other hand, would have a fillip of their own to aim for a mid-tier house.

As for first-time home buyers, these consumers can enter the market with the low tier homeowners moving up to mid-tier homes. According to Clear Capital, this could lead to demand equilibrium across all housing market sectors.

Villacorta also noted that the Midwest region, which experienced the healthiest growth in the December 2014 quarter, may be the first region to achieve such equilibrium across the three tiers. “We continue to observe the growing price performance gap between the top and bottom segments of the market,” he added. “The rate of appreciation for top tier homes is stalling, which is a more direct reflection of waning fair market demand.”

Further, Villacorta believes that the “moderating upper tier” could be the proverbial sorbet to cleanse the palate for “traditional home buyers,” and, as stated, impetus for “move up buyers” to enter the segment they want to move up to.

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