For several years available inventory levels in most markets have been dropping. Over the past year and a half, the number of available listings has been rising. While rising supply levels typically favor buyers, we need to look further into what’s happening in the various price ranges to understand the implications for individual buyers and sellers.
UPPER PRICE RANGES
Inventory in most upper-middle and luxury markets has been rising faster than buyer demand. There are two main causes of the rapid growth of high-end supply:
1. Over the past 8 years, rapidly rising values have increased prices at a faster pace than incomes have risen. What were once middle-priced homes are now considered high end;
2. During the recession, there was no demand for new construction. In an effort to make up for that lost time, post-recession developers have focused on building more profitable upper-end properties.
While this has been going on with single-family homes, the level of high-end condo construction in markets like Detroit, Ann Arbor, and Traverse City has gone through the roof.
Although the number of upper-end sales has been increasing in most markets, over-supply has prices flat and, in many cases, declining as a result of these two factors.
High-end sellers need to be aware of their competition, supply levels, and rates of sales. In general, upper-end seller competition has been increasing and homes need to be priced right and move-in-ready to attract buyers. Buyers who are looking at luxury single-family homes generally face less competition than in the recent past. Those looking for condos have great opportunities in that many markets have overbuilt in the past two years and developers need to move that inventory.
ENTRY AND MIDDLE MARKETS
Despite generally rising inventory levels, demand for entry and middle-priced homes continues to grow faster than supply. There is a significant shortage of affordable move-in ready homes. During the recession, most of these homes suffered from deferred maintenance and needed updates were put off. Roofs, baths and kitchens weren’t touched. Post-recession buyers have been less eager to take on work that the seller hasn’t done, plus most post-recession entry and middle-priced buyers can’t qualify for home equity loans to do the updates that sellers never did.
Sellers, there is a significant shortage of move-in-ready entry and middle-priced inventory. Buyers are willing and can pay a premium for homes that are done.
Many who can’t get a home equity loan can afford a finished home because they can roll the cost of the improvements you’ve done into their new mortgage. This is a primary reason why there is so much demand for move-in-ready homes in affordable price ranges.
LOOKING AHEAD
Through the balance of the year, expect to see values flatten for upper-end properties while buyers continue to compete with multiple offers for affordable move- in-ready homes.