The U.S. Housing Market’s Less-Expensive Homes Are Seeing The Sharpest Price Hikes

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Less expensive homes across the U.S. are slowly growing in price. The nation’s housing shortage and real estate market recovery, which began in 2012, have been increasing the cost of affordable homes in modest neighborhoods in recent years. But homes in higher-income areas aren’t appreciating as quickly.

Homeowners Marisa and Todd Bluth bought a starter house in Commerce City, Colorado in 2012 for $188,000. In just four years, they sold their house for $284,000 and bought a larger home for $375,000 in a different neighborhood.

“I never thought the house would appreciate so quickly,” said Todd, 34. “We played the market against itself.”

The Bluths are just one of the thousands of U.S. homeowners who have been able to move up to their “forever homes” much more rapidly because of the real estate market’s comeback.

But while the increase in housing appreciation has helped moderate-income homeowners, it’s also squeezed first-time homebuyers and retiring baby boomers out of the market.

Researchers at Moody’s Analytics studied 204 of the most populous U.S. counties. The bottom 10% of neighborhoods with the lowest median household income saw an annual home price increase of 7.6% between 2011 and 2018. In comparison, the top 10% of neighborhoods with the highest median income saw annual price increases at just 5.2%.

A Trulia study found similar results. Between 2012 and 2019, the bottom third of homes with the lowest prices appreciated up to 8.03% per year. Mid-level homes appreciated 6.39% and the most expensive homes appreciated 5.01%.

This disparity isn’t because homes in lower-income neighborhoods are renovating, although new roofs can have a $12,000 ROI and cedar siding can last up to 75 years. It’s actually because the wealthiest areas felt the weakest impact during the housing market crash whereas the lowest-income neighborhoods felt the hardest impact.

Kwame Donaldson, an economist at Moody’s Analytics, says affordable homes have seen the sharpest price hikes because it was the prices of inexpensive homes that fell the steepest during the housing market crash.

Many low-income employees lost their jobs during the Great Recession and couldn’t make their monthly mortgage payments. Home prices dropped 7.4% annually as a result and low-income areas saw more foreclosures.

Entry-level homes have also been in short supply, which has driven up their demand and their price tags. Construction companies are still wary of the real estate market, especially with higher-priced materials.

“There’s no new construction under $200,000,” said Mark Hite, a broker at Keller Williams Realty.

Many lower-wage homeowners in New York have been saving their profits and buying cheaper, but larger, homes in the south in places like North Carolina and Florida.

Up to 90% of consumers reuse product packaging boxes for occasions like these big moves. Wardrobe boxes alone fit 2 feet of hanging clothes.

“If you’re going to move south, you can get a lot of house for your money,” said Andee Post, another broker with Keller Williams Realty.

But not all lower-income homeowners have benefited from these price hikes. Homes that were lost during the Great Recession were grabbed by investors and rented out.

Approximately two-thirds of homes in the nation’s lowest-income areas are owned by investors. But at least one-third of low-to-moderate-income earners, Donaldson says, are reaping the gains of the housing market’s recovery.