In 2014, Plenty More Homes for Sale That You Probably Can’t Afford

Real-Time Research

In 2014, Plenty More Homes for Sale That You Probably Can’t Afford

The number of homes listed for sale under $375,000 has dropped by 28.2%, while there are 16.4% more homes for sale in the highest price tier.

Since 2011, homebuyers across the country have been frustrated, and it’s easy to see why: There have been far fewer homes for sale. This year, we have seen a slow but steady increase in overall inventory, but homes in the price range that most buyers can afford have only become harder to find.

Affordable Inventory has Declined


Month after month, we’ve reported on the shortage of homes for sale, but we wanted to see how the number of homes for sale has changed in different segments of the market. We dug into data on the hundreds of thousands of homes that were for sale in 2011, focusing on the middle price range: $130,000 to $375,000. In that price range, there were 688,000 homes available in July of this year, 17 percent fewer than the 829,000 in 2011.

In the most affordable segment of the market — homes priced at $130,000 or less — the number of available homes for sale has shrunk by 50 percent.

These declines contrast sharply with the most expensive segment of the market — homes priced at $375,000 or above — where there are 16.4 percent more homes for sale than there were in 2011.

“In Phoenix, low inventory is not necessarily the problem,” said Marcus Fleming, a Redfin real estate agent and market manager in Phoenix. “The issue seems to be that a lot of what’s on the market is overpriced, and buyers are feeling uncertain about whether it’s a good time to buy. Some of my clients are getting homes under contract but continuing to tour more properties, to be absolutely certain they’ve found the best deal.”

In the most recent Redfin Homebuyer Sentiment Survey, buyers indicated they are making adjustments to deal with the scarce offerings, including expanding their searches to new areas, preparing to pay more or even taking a break from their search.


Some Markets Hit Harder

The decline in mid-range homes has been even more extreme in some markets. In Las Vegas, for instance, the number of homes for sale in that city’s middle range, between $77,000 and $177,000 in 2011, fell by 51.5 percent. Likewise, in Sacramento, where the middle range was $129,000 to $319,000, the number of homes for sale has dropped by 48.6 percent.


Meanwhile, plenty more homes in the most expensive portion of the market have become available. In Phoenix, there has been a 68.7 percent increase in the number of homes for sale above $270,000; in Philadelphia, a 66.8 percent increase in homes listed over $365,000; and in Riverside, there were 51.5 percent more homes listed for sale above $475,000 than in 2011. Only in Boston, Chicago, Boulder and Long Island has the number of homes for sale in the priciest segment of the market decreased during this period.


The Middle Range Has Changed

While anyone who has paid attention to the housing market in recent years knows that the price of a home in 2014 doesn’t look much like it did in 2011, the increase in the average price of a mid-range home in four years is staggering in some markets.

For example, in Riverside-San Bernardino, an area that was hit hard by the foreclosure crisis, the middle price range has ballooned by 58.5 percent since 2011: In 2011, the middle was $130,000 to $312,000; today that range is $219,000 to $475,000. Across Redfin markets nationally, the middle range today is between $155,000 and $429,000, an increase of 36.6 percent from the 2011 range of $130,000 to $375,000.

To put that in perspective, the average price of a home in the middle half of the market has increased more than three times as fast as the overall rate of inflation since 2011, according to the Consumer Price Index (source: Redfin, U.S. Bureau of Labor Statistics).



Why is the Middle Getting Squeezed?

1. Homebuilders Haven’t Provided Much Relief to the Middle

The U.S. economy has improved since 2011, and more buyers are looking to move up or purchase their first home, but the number of newly constructed housing units as reported by the U.S. Census Bureau still hovers near all-time record lows. That lack of new construction means that increased demand has driven up prices.


New home construction has come back from the lows seen in 2008, but growth has slowed again in recent months. For much of 2013, year-over-year growth in new construction was well above 10 percent. But so far in 2014, only April has seen double-digit growth in new construction, and the first three months of the year saw either no growth or moderate declines.


2. Investors and All-Cash Buyers Have Outmuscled Traditional Buyers

The proportion of home sales purchased with all cash by investors or individuals is virtually unchanged since 2011. In the middle price range across Redfin markets thus far in 2014, a fourth of purchases were all-cash sales. For homes priced at $130,000 or less, 61 percent of all sales through July were all-cash purchases, up from 56 percent in 2011.

3. Many Homeowners are Rate-Locked or Trapped with Low Equity

As many as 35 percent of current homeowners are unlikely to list their homes for sale either due to having low equity or having purchased or refinanced at historically low interest rates such that the purchase of another home would be too costly in comparison, according to a recent analysis by Redfin. With more than a third of existing homes unlikely to be listed for sale, the supply of homes is constrained both by builders and existing homeowners.

What to Expect for the Rest of 2014 and Beyond

New home construction will play a key role in providing relief to mid-range homebuyers. There are signs that more new home construction is on the horizon, including increasing employment in the residential construction job sector and a 6 percent increase in building permits this year compared with 2013, according to the National Association of Home Builders.

Home sales this year have been down the most in markets such as San Diego, Phoenix, San Francisco and Washington, D.C., where price growth has been the strongest. And while that price growth has recently spurred more homeowners to list their homes for sale, buyers there have balked at prices rivaling peak 2006 levels. More affordable markets such as Charlotte and Atlanta, where prices have increased less than in other metro areas, have continued to see overall growth in sales this year.

Without more affordable options, homebuyers will have to choose between paying more and getting less, or putting off their home-buying plans entirely.

Methodology: For this report, we looked at all homes listed on the MLS between 2011 and 2014. Homes listed for sale were divided into quartiles, based on 2011 listing prices in each market. The middle price range was defined as the 25th to 75th percentile in terms of listing price within each market in 2011.

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