The Shrinking Middle Class

The American Middle Class is smaller than it used to be.

In September (2018), a Market Watch headline declared “the shrinking of America’s middle class has finally ground to a halt.” About 52% of American adults lived in middle-class households in 2016. That number is up from 51% in 2011; however, “middle-class incomes are stagnant.”

But what is “Middle Class?”

John Burns Real Estate Consulting looked at how this “widening gap in income distribution” is affecting home buying. Here’s what they concluded.

• More rental demand and downward pressure on homeownership. With 35% of working-age households earning less than 2/3 of the US median income, compared to 31% in 1970, a lower percentage of households are able to qualify to purchase a home, and thus more will rent.

• More demand for lower-priced homes. The lowest-priced homes in the market have even more demand. In most markets, the months of supply and days on market of the lowest-priced homes are extremely low.

• Less demand for median-priced homes. The shrinking middle class (down 12% in share of households and 22% in share of aggregate income) creates less demand in the middle of the market.

• More high-end home demand. With a larger share of households having more than double the median income and a rising share who are buying later in life due to delays in marriage and having children, a rising percentage of households are buying a more expensive than usual first-time home. In our experience, this isn’t showing up in the very highest price points, but rather for homes priced up to 50% higher than the median home price in a market. Home builders in particular have benefitted from this demand, selling higher-density new homes in great locations to first-time buyers.

Read the full article here.