Cheapest Homes the Hottest

Key Highlights

• Booming housing market boosting sales of cheapest homes
• CoreLogic indicates median home costs in zip codes with cheapest homes experienced +42% rise in prices since 201

Pandemic Fueling First-Time Buyer and Investor Demand for Lowest-Tier Housing

We all know that the pandemic has “encouraged” wealthy homebuyers to splurge on vacation homes and for city families to move to the suburbs.  But, have we been paying enough attention to what’s been going on at the bottom end of the housing market?

In a recent analysis by CoreLogic for The Wall Street Journal, we learn that home prices in zip codes where the median home cost was less than $100,000 in early 2018, prices are now +42% more.

Such a price increase in this lowest tier of the market is twice the rise of homes with median prices between $150 and $200,000 and three times the increase in places with homes costing $300,000 and up.

Home Price Growth by Price Tier Over Past 3 Years, according to CoreLogic: 

Below $100,000 – +42%

$100K – $150K – +31%

$150K – $200K – +21%

$200K – $300K – 17%

Above $300K – +12.5%

Who’s Buying?

Debora Flora, executive director of Mahoney County Land Bank, a bank in Youngstown OH that manages and sells vacant properties in town to those willing to fix them up, said that buyers of bottom tier houses are both local buyers looking to upsize and/or downsize and investors.

Prices on bottom tier homes that require “lots of rehab” are comparatively low by national standards but mortgage and construction loans are “tough to get.”  Flora said that homes needing thousands in rehab costs tend to go to investors who have the cash to do the rehab.

“The Good Houses are Instantly Gone”

Value of the cheapest third of homes has increased faster than the rest of the housing market in the last few years.  That value continues increasing into 2021.

In Detroit’s least expensive zip code where the median sales price was $45,500 in early 2018, prices have increased +113%, according to CoreLogic.

The Detroit Land Bank Authority manages thousands of vacant properties in dire need of rehabilitation throughout the city of Detroit.  This land bank authority sold 1,091 of these homes in Q1 2021 alone, more than double the number of homes it sold in all of 2020.

Detroit’s home values, according to Zillow, increased +24% in the 12 months through April 2021.

Such home price increases are making it tough on everyone, investors and individual homebuyers alike.  As one such individual homebuyer, Tekeela Daniels, said, “The good houses are instantly gone.  It’s hard out here getting a house.”

Thanks to CoreLogic, Zillow and The Wall Street Journal.

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