Demographics Driving a 'Mismatch' of Housing Inventory
Luxury homes languish on the market, but first-time buyers are challenged to find entry-level homes.
The average sale price for luxury homes nationwide fell 1.6 percent to $1.55 million in the first quarter of 2019, according to a new report from Redfin, the first annual decline in nearly three years. Sales of homes priced at or above $2 million fell 16 percent year-over-year last quarter, marking the second consecutive quarter of declining sales and the biggest luxury sales decline since 2010. The supply of homes priced at $2 million or above increased 14 percent annually in the first quarter, the fourth consecutive quarter of increases.
Demographics are the driving force, says Zillow, which issued a new report describing a housing market that has been marked by shrinking inventory and higher prices, particularly in the least expensive third of homes – the homes most likely to be targeted by first-time home buyers. These starter homes have gained 57.3% in value over the past five years, a median increase of $47,600, while for-sale inventory in this price range has fallen by 23.2%. Zillow found that the most expensive third of homes gained 26% in value and homes in the middle third appreciated 36.8% during the same period.
Real Trends president and founder Steve Murray also took note of the impact of demographics in a recent "Real Trending" podcast: "First-time home buyers [who] can’t get into the housing market, and by the way, we’re creating 1.4 million net new households a year in this country while only building 1.1 million homes... are piling into rentals, which are also becoming scarcer," he said.
Murray went on to note that Generation X buyers do not quite have the same numbers, population-wise, as downsizing baby boomers, hence the larger homes are sitting on the market longer than before.
All this is supported by a recent report from realtor.com, which noted that the U.S. median listing price set a new record in April--$310,000, up from $300,000 in March. Danielle Hale, chief economist for realtor.com, says she expects the rising median listing price to continue through summer.
"Despite growing availability of total homes for sale, prices are rising in response to more high-end homes for sale, which is not exactly what most shoppers in today's market are looking for," she said, adding that the "mismatch" is driving weaker sales so far this year.
Another factor in play is the change in tax policy, said Redfin chief economist Daryl Fairweather.
"Because homeowners can't deduct as much mortgage interest as they used to be able to, the calculus has changed when it comes to buying a home, especially an expensive one," said Fairweather. "Although the new mortgage rule applies to everyone in the country, high earners in states with high income taxes like California and Massachusetts saw their tax bills surge.
Not only do the new rules make it less desirable to purchase a multi-million dollar home in high-tax states, it has also motivated some people—especially those with big incomes and big housing budgets—to consider moving to places like Florida, Washington or Nevada, which have no state income tax."
The shift is actually welcome news to real estate agents in some parts of the country, notes Redfin.
Paul Reid, Redfin market manager in Boise, Idaho, notes that he is seeing growth. "We are helping a lot of homebuyers move here from Seattle, Southern California, Denver and the Bay Area. Many plan to work remotely, bringing their big-city salaries to Boise. These buyers can afford high-priced homes, and what they get for their money is substantially nicer than what they could buy for the same amount of money in the cities they're coming from."