The reasons for this phenomenon have to do with simple economics, both for home builders and home buyers.
In recent years, builders have focused on building larger homes because they have financial incentive to do so. “Builders were only building luxury, high-end homes because those were the sure thing,” says Nela Richardson, chief economist at Redfin, a real estate data firm and brokerage. Not only did wealthier buyers have the money to purchase homes, but they were also the only ones who could qualify under tighter mortgage standards.
Other factors in the construction industry have amplified this tendency. “Lot availability has declined,” says Nino Sitchinava, principal economist at Houzz. As lots become more scarce and expensive, and construction costs go up, builder profit margins get squeezed. It makes economic sense for developers to build larger homes, Sitchinava says.
Also, foreclosures are still happening, and homes that are foreclosed tend to be small- to medium-sized. Although the distressed sales rate has come down, it’s still about 23,000 per month, according to Attom Data Solutions, formerly known as RealtyTrac, a firm that tracks foreclosure. That’s more than twice the rate in 2000. With so many small- and medium-sized homes going through foreclosure, builders don’t have incentive to build homes on the smaller end. “It doesn’t make sense to make medium- to small-sized homes when there are so many existing homes that are not doing well,” Sitchinava says.
The result is not enough supply on the more affordable spectrum to meet the demand. As a result, prices of starter homes and small homes are rising at a faster rate than prices at the high end of the market.
Between 2012 and 2015, prices for the most affordable one-third of homes (old as well as newly built) rose 38 percent, while the number of homes for sale in that group fell 39 percent, according to Redfin. Among the highest-priced one-third of homes, prices rose 23 percent and supply rose 36 percent.
Trulia’s data on the nation’s largest 100 metros also shows the supply of homes for sale down 38.6 percent from four years ago. The supply shortage is most striking for “starter” or “trade-up” homes.
from Houzz http://ift.tt/2d4mpwt
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