Housing Market Splits: Big homes sell, smaller ones lag
By Oregon Tax News
About six million homes need to be sold every year in this country to maintain its housing market. But at current sales rates, fewer than 4.75 million will sell this year.
But that’s only among normal home buyers. Among the 1.5% of Americans that are buying luxury homes worth more than a million dollars, home prices are up 0.7% according to Zillow. The housing market has split into two sectors. Among higher value homes, business is booming. For the rest of the country, prices are still falling and not expected to normalize until 2013. Prices are expected to fall at least five percent more between now and the end of the year.
Nearly twenty-five percent of American homeowners owe more on their house than it’s worth. Plus, huge numbers of foreclosures have made it very difficult to get a loan—despite record low interest rates. Nearly half of current homeowners would be unable to get a loan today, according to economist Paul Dales of Capital Economics. Due to these foreclosures, new homes cost 28% more on average than used ones. Under normal circumstances, a new house is only about 14% more expensive.
The luxury market is fueled by international business. Foreigners purchased $82 billion worth of American real estate last year, whereas in 2009 only $66 billion in real estate was sold to foreign clients. Many of these rich clients are able to bid in cash. The twists of the stock market are a topic of conversation for them—not a topic of worry.
First-time homebuyers are getting rarer. Only 32% of July home sales were made to first-time home buyers. Usually, nearly 50% of sales are to first-timers. First-time buyers are important because by purchasing smaller, cheaper homes, they allow sellers to purchase more expensive, larger ones.
Usually, the luxury market and the non-luxury market move together. Some economists find the split between the two troubling.