The Gap Between the Bottom and Middle is Tight, For Now

By Rod Sager, originally posted on Rod's Real Estate News.

Have you felt trapped in your house over the last few years? Biding your time waiting for the real estate market to correct so you can sell? 2015 may be the year for you. Over the last two years here in Clark County we have seen a roughly 20% increase in the median sale price. Many people that were not able to sell now may find themselves in a positive situation. We very well could be at a turning point of opportunity. For people that are making a move up in price, selling their less expensive house now for a slightly lower amount than they might get next year could prove advantageous. The more expensive house they want will also likely be more expensive. So selling a small house for less to get a big house for less sometimes makes sense.

I saw prices on entry level houses flatten a bit in the second half of 2014. I believe that the market for the 40 year old 3 bed 2 bath home is just about as high as the economy will support right now. Barring any dramatic improvement in the overall economic condition 2015 is a great time to sell an entry level home. Where the market continues to see improving prices is that middle move up. Last summer I ran into situations where a simple 1400 foot ranch home would sell for $220k and a gorgeous 2100 foot home in the same area was fetching just 10% more. I believe that the gap in those market segments should widen this year as the entry level could be flat and the middle will continue to swell in values. Selling the little house to get a big one is prime for 2015. Some people may even find that their house payment is only marginally higher since rates are quite low right now.

Generally a real estate market rebound will begin at the bottom. The bottom of the market can drive the middle. If the bottom is soft so will the middle be. When the bottom begins to move up in value the middle is going to trail behind for at least six months. So that leaves a window to move from the bottom to the middle with the move up house feeling like a bargain. Once the bottom hits the high plateau then there is only a six month window of opportunity to capitalize on the middle lagging behind on growth. This is the gap between the market segments. As an example, entry level homes that were fetching $160,000 two years ago are now selling for $200,000. But the middle houses that were getting $220,000 two years ago are running about $260,000 now. The 25% gain at the bottom and a 16% at the middle translates into a relative deal for the move up buyer. This year there is a good chance the $200,000 house will only rise a little maybe to $210,000 but that middle market is showing signs of activity suggesting the 260,000 house will get to $285,000 this year. So holding out for an extra ten to buy a house that will cost an extra 25 may not be the best approach.

Keep an eye on the real estate trends. Have your favorite Realtor® send you listings so you can keep your finger on the pulse of the market. I can only see trends, I am no Nostradamus, so anything can happen. Real estate is however a very trend based market and it typically follows modestly predictable patterns.