The average starter home in the United States sold for a record high last month, yet sales notably increased.
The average price of a starter home rose 2.2% from last August to $206,508, while starter-home sales increased 3.8% year over year, according to a new report from Redfin, a subsidiary of Rocket Cos.
August marked the 12th consecutive month sales increased, reaching the highest August level in three years and significantly outpacing higher-priced tiers.
“Starter homes are holding up better than other price points because they’re the most attainable option in a market where affordability is still stretched,” said Redfin Senior Economist Sheharyar Bokhari in a press release.
“First-time buyers and downsizers alike are competing for the same pool of smaller, less expensive homes, which is keeping demand relatively strong even as higher tiers remain sluggish,” Bokhari added. “For many households, stretching into the mid-tier isn’t feasible with high prices and elevated mortgage rates.”
Mid- and high-tier home prices grew 1.4% and 2.7%, respectively, from last year to $370,000 and $575,000, nearing record highs. But unlike starter homes, sales for both tiers have fallen year over year each month since February, dropping 0.6% and 1.2%, respectively, in August.
Pending sales of starter homes also rose 3.1% year over year in August, while pending sales of mid- and high-price homes fell 0.1% and 0.8%, respectively.
Mortgage rates have dropped recently, and while they rebounded last week, the improved affordability could lead to more sales in the fall, but first-time buyers may continue to struggle.
“Starter home prices have climbed so much over the last decade that even with mortgage rates coming down from their peak, affordability is still a huge hurdle,” said David Palmer, a Redfin Premier real estate agent in Seattle, in the release.
“At the same time, buyers who already own a home have more leverage – they can use the equity they’ve built to make stronger offers. That means entry-level buyers are often losing out to move-up buyers who have deeper pockets.”
Despite relatively strong demand for starter homes, prices have risen modestly due to a 16.4% increase in active listings year over year. In comparison, active listings of mid- and high-price homes increased 13.4% and 12.5%, respectively.
Starter homes also sold a week slower than last year, as it took all three tiers about 41 days to sell.
Overall, home prices favored buyers in July. Prices saw a 1.7% annual gain, down from 1.9% in June, according to the S&P Cotality Case-Shiller U.S. National Home Price NSA Index. U.S. Federal Housing found similar results, reporting a 0.1% month-over-month decrease in July.
“July’s results reinforce that the housing market has downshifted to a much slower gear,” said Nicholas Godec, head of fixed income tradables and commodities at S&P Dow Jones Indices. “In fact, this is one of the weakest annual price increases in the past decade – and notably, it’s below the 2.7% rise in consumer prices over the same period.”
