Despite the hopes of many the real estate marketplace has not returned to the era of rising prices and expanding home sales. The certainty that once powered real estate sales, the view that real estate was a sure and certain investment, one steady to grow in value, is no longer widespread. To understand what’s going on you have to look at three realities.
The New Realities of Real Estate
First, in a broad sense home prices are rising across the country. According to the National Association of Realtors existing home prices in April were 5.2 percent higher than a year earlier.
Second, new-home sales continue to lag with April showing a 4.2 percent decline when compared with 2013.
Third, despite impressive price growth during the past few years home values as of February remained 7.6 percent below the 2007 peak.
What these general figures do not show is that the real estate market has become remarkably segmented.
For instance, the National Association of Home Builders reports that for June “of the approximately 350 metro markets nationwide, 56 returned to or exceeded their last normal levels of economic and housing activity.” And what happened to the 290 or so metro markets that have not seen rising economic and housing activity? Don’t ask.
Not only is the country being divided into “have” markets and “have nots,” the same is taking place with home values within markets. The National Association of Realtors explains that segmentation also appears when we look at homes in terms of pricing. Homes at the lower end of the price spectrum have seen declining sales while homes in the upper brackets are experiencing more demand.
Slowing home sales in the lower brackets is a huge problem. If homes selling between $100,000 and $200,000 are not in demand it means that the owners of those homes cannot move up to properties with higher values. There’s a ripple effect which impacts the market until you reach the point where buyers have enough income and assets so they’re relatively immune from our lagging economy.
Restoring The Real Estate Market
What these numbers show is not that the housing market is particularly troubled but rather that the sales figures we see reflect the ongoing problem of insufficient job development and declining household incomes, incomes which have fallen 9 percent since 1999.
Until job totals and income numbers materially improve there’s no reason to suggest a sudden and dramatic increase in home sales across the country.
Will the segmentation trend touch you directly?
The next time you hear somebody celebrating the alleged joys of downsizing, right-sizing and cutting government programs you might want to consider how that impacts the value of your home. If your property is worth less than $750,000 the odds are pretty good that such cutbacks and reductions are hurting your bottom line.
What about the lucky 4.5 percent with homes valued at $750,000 and above? As President John Kennedy explained at his inauguration, “if a free society cannot help the many who are poor, it cannot save the few who are rich.”