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Homes priced below $250,000 appreciated the most in 2015 at a level between 6 and 12 percent, according to the latest housing report released from the W. P. Carey School of Business at Arizona State University. Homes from $250,000 to $500,000 were up 2 to 6 percent, while homes priced from $500,000 to $2 million moved only slightly. Though the market for homes priced over $2 million was stronger in the beginning of 2015, demand cooled with the financial markets and remains relatively weak as a result.
"Demand at the higher end of the luxury market is the softest we’ve seen in a long time,” said Michael Orr, director of the Center for Real Estate Theory and Practice and author of the report. “I expect this weakness will continue as long as we experience uncertainty in the financial markets worldwide.”
According to the report, the appreciation of homes under $250,000 was driven by chronic weak supply and continuing demand by boomerang buyers and millennials entering the market for the first time. A large number of homes in this price range continue to do service as long term rentals, having been snapped up by landlords during the foreclosure wave of 2008-2013. With occupancy rates and climbing rents, only a few of these homes are being released into the market for sale leading to the likelihood that appreciation will continue to increase in 2016.
A healthier level of supply and demand exists in homes priced $250,000 to $500,000. The majority of new homes being built are in this range, which helps to moderate upward pricing pressure. This, too, will likely continue through 2016.
“The rate of appreciation in the move-up market was far greater than inflation in 2015, but this is not too difficult to achieve given the unusually low level of inflation,” said Orr. “With most commodity prices still falling hard, the odds are strong that mid-range home prices will easily beat inflation once again in 2016.”
Additional highlights from the November 2015 report:
Listen to Orr’s insights on the November report on a podcast at http://research.wpcarey.asu.edu/.
Additional information on demand, supply, pricing, foreclosure starts and completions, home sales, permits, purchasers and the rental market can be found on the complete report at www.wpcarey.asu.edu/realtyreports. The premium site includes statistics, charts, graphs and the ability to focus in on specific aspects of the market. For more about Orr’s work, see http://research.wpcarey.asu.edu/