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Income Inequality Hits the Housing Market

Jonathan Miller writes about the housing economy and other aspects of real estate. He began a real estate blog, the Matrix, in 2005, and has written a column for Curbed.com. He is co-founder of Miller Samuel, a residential real estate appraisal company, and the commercial valuation firm Miller Cicero.
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There's been plenty of talk recently about signs of recovery in the housing market. Rather than think about housing as a single market, it might be helpful to look at housing as many markets based on everything from geography to price to new versus existing.  

What I find intriguing is how things are shaping up based on price. It's pretty clear that the fastest growth in new housing is at the high end, where sales are increasing the most. This might be a sign of economic recovery, but more likely it suggests that those in higher income brackets are doing better than average. 

One of the features of today's mortgage market is that, in spite of low rates, credit can be hard to obtain because of tough underwriting standards.  That doesn't affect high-end buyers as much as others because they tend to rely less on financing and have more cash as a result of gains from their financial-market investments. 

According to the U.S. Census, the biggest gain in sales of new homes last year was for properties costing $500,000 and up, with a 17.3 percent increase, while sales of the least expensive houses tumbled 11.4 percent. 

 Perhaps this is like some law of physics in which what goes down a lot must have an opposite reaction. True, back in the dark days of the financial crisis in 2008, sales of houses in all price categories plunged. The high end was hurt much harder, though, perhaps because the crash in financial markets inflicted so much pain on the investments of the well-off. 

What remains to be seen is whether sales of more expensive houses will continue outpacing the broader market. It seems as though all builders are trying to cash in on the same part of the market at the same time. This is keeping new lower-priced housing in short supply. We can only hope that better economic conditions will boost employment, raise incomes and ease credit conditions so that more moderate-priced housing is built and bought. 

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Jonathan J Miller at jmiller@millersamuel.com

To contact the editor on this story:
James Greiff at jgreiff@bloomberg.net