InvestingMarkets & Economy

Is there really a starter home price gap?

Recent research has several flaws that fooled mainstream news sites
  • Low-end and move-up houses are always in greater demand than the top-end.
  • Young people may struggle to buy because of job instability, or difficulty saving, but price versus payment is not the problem. Construction shortage is.

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One of the big portal's chief economists -- Trulia’s -- released study conclusions this week based on the company's "inventory monitor": the shortage of housing for-sale inventory is due to the price gap between low- and mid-level homes and “premium” ones, and the large number of starter homes either bought by investors or underwater vs. mortgages. These conclusions have gone viral, now in many major publications and a lot of local ones. I think these conclusions are mistaken. One at a time.... Is there a shortage of low-end and move-up homes? Low-end and move-up houses are always in greater demand than the top-end. Every responsible Realtor shows clients the “inventory turn” at specific price points -- that is, at current rates of sale, how many months of supply are available. In every town in America, as prices rise past certain points, then inventory increases, usually explosively. At the top end, 10 years of inventory are common. Local prices are an expres...