The housing recovery, just like everything else in today’s economy, has been uneven.
The epicenter of the housing crisis was in low-income neighborhoods, where a disproportionate number of mortgages were of the subprime variety and where home values tend to be more volatile. Once the crisis hit, a larger percentage of homeowners in these areas fell underwater, meaning they owed more on their home than it was worth. This compounded the troubles these neighborhoods were already in, as many homes were abandoned and it was difficult for qualified first-time buyers to move into these homes because of the legal and financial challenges of working through underwater inventory. And this scenario ultimately led to a bifurcated recovery in which home prices in wealthy neighborhoods appreciated quickly while the recovery failed to reach other locations at all.
In 2014, we finally started to see housing inventory rise again, as the backlog of foreclosed homes started to reach the market and as homeowners reached positive equity, making it easier for them to put their homes on the market.
But because of the uneven nature of the recovery, more homes in the bottom third of home values are underwater than any other group. The folks who own these homes, generally workers in the lower middle class, have not seen their wages rise in real terms for many years.
After years of bad economic news for this group, there’s finally something to cheer about. According to a report released Friday by online real estate listing firm Zillow, home prices at the bottom are finally starting to rise at a faster pace than the market overall. Reads the report:
U.S. homes valued in the lowest one-third of all homes – typically the kind of entry-level starter homes sought by younger, first-time buyers – rose 6.8 percent year-over-year in December, outpacing the 6.6 percent appreciation pace of all homes overall. Home values in the bottom tier bottomed out in January 2012 with a median value of $84,100. By December, they had bounced back to a median value of $101,400. In the fourth quarter, home values in the bottom tier were up 1.5 percent over the third quarter.
This is great news for the housing market. “In many ways, for the housing market to fully normalize, it has to start at the bottom,” said Zillow Chief Economist Stan Humphries, in a statement. “More lower-end home sellers will help meet demand from entry-level buyers, and these sellers in turn will re-enter the market in search of a slightly pricier home, which will entice more middle- and upper-tier sellers to list their homes.”
The lopsided housing recovery, much like the unequal nature of today’s economy overall, has been a drag on the real estate market. But if faster price appreciation on the bottom end continues this year, 2015 might be the year the housing market approaches normalcy.