A Tale Of Two Markets: Entry Level And Luxury Housing Markets Trending In Different Directions

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March 10, 2016

It was the best of markets, it was the worst of markets, it was the age of selling, it was the age of buying, it was the epoch of entry-level homes, it was the epoch… okay, you get the point. The housing market is taking on very different traits depending on what price a home is being sold for.

Across the nation, lower priced homes are receiving multiple offers just days after being placed on the market and are typically selling for more than their list prices after bidding wars drive up the cost. Meanwhile, expensive luxury homes are sitting quietly on the sidelines languishing.

According to Realtor.com, the number of homes priced below $100,000 fell 8.6 percent in January compared to a year earlier. During this same time period, the number of homes priced above $1 million rose 15 percent. Economists say there are a number of reasons behind this split market.

Entry-level buyers are finally beginning to venture back out into the market after the housing bust, lured by cheap mortgages. The problem is that during the time period when entry-level buyers weren’t buying, builders weren’t building, meaning the inventory is extremely tight right now.

On the flip side, high-end buyers are a little gun-shy thanks to the fluctuating stock market. At the sales pace set in January, it would take about four months to exhaust the supply of existing homes. Six months is typically seen as representative of a balanced market.

While the options for entry-level buyers are slim, luxury buyers have plenty. One buyer who was recently looking for a home in the $750,000 range was shown more than 45 potential homes. Knock off $350,000 from the price point and the number of homes to look at drops to about three or four.

Many builders who have focused on building luxury homes in the past are now beginning to turn their attention to smaller, inexpensive starter homes. D.R. Horton Inc., for example, has seen success after they began building for the entry-level buyer.

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