If you need any further convincing that we need to build more lower-priced homes, take a look at resale supply. The supply of low-tier listings (defined by Zillow as listings priced in the bottom one-third of home values in the market) have been declining steadily since mid-2014 and are down a whopping 20% YOY in the 31 largest housing markets. In comparison, top-tier and middle-tier listings are down 8% and 12%, respectively.
Listings have fallen 22% or more over the last year in 13 of the 31 largest housing markets nationally. The Bay Area, Denver, Raleigh-Durham, Seattle, Orlando, and Minneapolis have all experienced 31%+ YOY declines.
This begs the question: What has changed to cause the plunge in lower-priced listings? The answer lies primarily in the surge in entry-level and move-down home buying. Consider the following demographic trends:
- Strong pent-up demand from millennials who are finally forming families and looking to buy homes for the first time.
- Increasing demand from move-down buyers looking to take advantage of recent price appreciation and cash out of homes that are too large. We expect the growing retiree population will purchase 77% more homes over the next 10 years than the last 10 years, with many buying a less expensive home so they can tap into the equity in their current home.
These two groups represent the barbell of demand we keep talking about.
Young family and move-down buyers actually have a lot in common: they typically don’t want (or need) large homes and are price conscious. Whether strapped with student debt or living on a fixed income, these buyers often opt for smaller, more affordable homes in a desirable location (close to employment and/or grandkids, good schools, etc.). As supply in the resale market continues to tighten, the need to provide new innovative housing solutions for these barbell buyer segments has perhaps never been greater.
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