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:

• New single-family permits for Maricopa and Pinal counties will fall between 16,500 and 17,000 for 2015. 
• Canadian demand has dropped dramatically from 1.6 percent to 0.6 percent over the last 12 months. 
• The percentage of residences in Maricopa County sold to owners from outside Arizona was 15.3 percent in November, up from 14.2 percent in October but below the 16.6 percent in November 2014. Buyers are coming primarily from California (4.5 percent), Colorado and Illinois (0.9 percent) as well as Washington (0.8 percent) and Minnesota (0.6 percent). 
• Non-distressed transactions for single-family homes were up 15 percent from one year earlier with investor flips up 39 percent. New home sales were up sharply by 34 percent, distressed transactions fell 19 percent, and reversions to lenders declined by 36 percent compared with figures for November 2014. 
• Single-family home prices moved a little higher in November, particularly for distressed homes. The prices of new homes appear to have declined, but not in terms of average price per square foot. Instead, the average new home got smaller and so its average price declined.
• Pricing in the townhouse/condo sector moved higher to a greater degree than single-family homes over the past 12 months. Distressed re-sale condos properties have been particularly strong in price, reflecting the low supply at price points below $200,000. 
• Active listing counts (excluding homes under contract) rose less than 1 percent during November but as of December 1, 2015 we still had 13 percent fewer active listings than on December 1, 2014. This shortfall was all at the affordable end of the market and at the higher end we have more supply than last year. Distressed supply was down 39 percent from a year earlier and 6 percent lower than last month.
• Foreclosure starts on single family and condo homes fell 7 percent between October and November, but were up 8 percent from the unusual low we saw in November 2014. Completed foreclosures on single family and condo homes were down 20 percent from the prior month and down 21 percent from a year earlier.

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/