Middle of the market to lead us recovery

Photo credit: Cyndie

"Traditional homebuyers, make your move," says Clear Capital's latest report, which forecasts that 2015 will see traditional buyers in the middle of the housing market return, causing a ripple of transactions down the property ladder.

The US property market is increasingly becoming a two-tier system, but a slowdown in activity at the top end is opening up a window for traditional buyers to step up their activity.

After a year of booming price rises, growth continues at all levels of the US property market, albeit at a more moderate pace. At the high end, though, quarterly price increases slowed to 0.3 per cent in the final three months of 2014, down from the 1 per cent recorded in the previous three quarters. If the trend continues, Clear Capital forecasts price falls in the top segment by the end of 2015.

The bottom of the market, though, is in rude health, with prices leaping 10.2 per cent year-on-year in January 2015, while prices grew 1.5 per cent quarter-on-quarter.

While house price growth was formerly being driven by investors, though, it is now sustained by domestic buyers, as the climb in values continues to bring more homeowners out of negative equity. As a result, a rising number of homeowners are expected to move up the property ladder, freeing up space further down the rungs for first time buyers to climb.

"Stalling prices in the top tier of the market could create the perception of a good deal," says Clear Capital. "This instills confidence in mid tier homeowners, motivating them to move-up to the top tier. In turn, this opens up more opportunity for low tier homeowners to move-up to the mid tier. Creating new opportunity in the low tier could entice potential first-time homebuyers to enter the market. This domino effect could be the catalyst for balanced demand across all sectors of the market."

The sentiment is shared by the National Association of Realtors, with Lawrence Yun, NAR chief economist, observing that any growth in the housing market would "largely depend on the willingness of current homeowners to realise their equity gains from the past couple years and trade up".