News

Low-end housing better investment than high end

2015-11-03

NEW YORK – Nov. 3, 2015 – Should investors change their real estate purchase strategies? According to Clear Capital, its recent study suggests that there are drastically different dynamics going on at the extremes of nearly all markets – and investment potential appears to be leaning towards the low-price tier.

The study ignored 50 percent of homes of moderate value, looking only at homes in the low tier – the bottom 25 percent of all transactions in a market – and the top tier, or highest 25 percent of transactions in each respective market.

Study results

• Metropolitan Statistical Areas (MSAs) with some of the highest distressed saturation rates like Detroit, Orlandoand Miami have low-tier year-over-year growth outpacing the top tier by large margins – in some cases by more than 20 percent.

Study authors say the investment difference is "likely due to high levels of investor activity in the low price tiers, which also typically represent the majority of distressed activity. However, the top tiers of these markets appear to be lagging significantly in comparison."

• The Detroit MSA knocked the San Jose MSA off its top spot, where quarter-over-quarter growth was 2.4 percent. But most markets appear to be slowing down for the fall and winter real estate seasons. Las Vegas quarter-to-quarter growth fell from 2.0 percent to 1.5 percent.

• In Miami, the housing market's top tier is growing by an otherwise impressive 0.6 percent quarter-to-quarter and 4.9 percent year-to-year. However, the lowest tier of the market appears to be sprinting ahead with 2.7 percent quarter-to-quarter growth and 15.5 percent year-to-year growth.

"These kinds of disparities between the low and top tiers are obfuscated when looking at the growth figures for the entire market as a whole," study authors say. They "could lead to missed opportunities for investors who are only looking at the headlining figures, or worse, disappointing returns for those who are investing on higher end properties."

"As the housing recovery continues to unfold, we are clearly seeing a growing dichotomy between the low price tier and top price tier market performance," says Alex Villacorta, Ph.D., vice president of research and analytics at Clear Capital.

"For both first-time homebuyers and investors, this should signal a major opportunity in these lower tiers," Villacorta says. "For any buyers of high end properties, this clear trend signals the need to be highly vigilant with investment strategies in this market segment."

© 2015 Florida Realtors®

Reprinted with permission. Florida Realtors®. All rights reserved.

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