While the U.S. housing market is at a standstill due to ongoing affordability issues keeping buyers to the sidelines, starter homes are proving to be a “bright spot” for Americans struggling to step onto the property ladder, according to a new report by Redfin.
Sales of starter homes rose 3.9 percent in June compared to a year earlier, the highest level since June 2023. At the same time, sales across all other price tiers dropped—proving that a growing number of Americans are turning toward smaller, cheaper homes to realize their dream of homeownership whereas traditional options are no longer available.
What Is Happening in the US Housing Market
The U.S. housing market is experiencing a slowdown as Americans crushed by sky-high home prices, elevated mortgage rates, rising home insurance premiums and homeowners association (HOA) fees cannot afford to become homeowners.
It is a bit of an unfortunate coincidence that, at the same time, sellers who for years had held onto their homes have now stopped waiting for mortgage rates to come down, and they want to off-load their properties. The result is a dramatic imbalance between sellers and buyers, as for-sale inventory piles up on the market without going under contract.
Under these conditions, buyers are seeking opportunities wherever they can find them—and that, right now, is in the starter homes market.
San Diego, California, experienced the biggest increase in starter-home sales in the country, up 18 percent year-over-year in June. It was followed by Providence, Rhode Island (+17.4 percent), and Sacramento, California (+14.3 percent).
While starter homes, at a median price of $260,000, reported a year-over-year increase in sales in June, every other price tier experienced a dip.
Sales for mid-tier homes, with a median sale price of $370,784, slipped by 0.9 percent in June compared to a year earlier. Sales for high-tier homes, with a median sale price of $577,117, fell by 3.6 percent year-over-year. Sales for luxury homes, priced at a median of $1.29 million, dropped by 6.7 percent.
Inventory for starter homes was also growing faster than in any other price tier. In June, it was up 19 percent year-over-year. Inventory for mid-tier homes was up 15.1 percent, while for high-tier homes, it was up 13.2 percent. The number of active listings available on the market for luxury homes was only up 9.1 percent year-over-year in June.
The total number of starter homes for sale increased the most in Las Vegas, Nevada (+53.6 percent), San Diego, California (+44.1 percent), and Phoenix, Arizona (+43.1 percent). Only in one metropolitan area, San Antonio, Texas, active listings fell year-over-year by 2.2 percent in June.
Why Americans Are Choosing Starter Homes
The reason why American homebuyers are now looking at starter homes is simple: these are cheaper homes that many can afford.
“In a market where it’s difficult for most Americans to afford a dream home, many are turning toward starter homes,” Redfin Senior Economist Sheharyar Bokhari said in a press release.
“They’re typically smaller and more modest, but starter homes remain within reach for some buyers who have been priced out of higher tiers. First-time buyers are especially apt to go for starter homes, as they don’t have equity from a previous home sale to help with their payments.”
But their popularity is bringing up the price of starter homes across the country. Prices for starter homes grew by 3.1 percent year-over-year in June, more than mid-tier (2.1 percent) and high-tier homes (2.7 percent). While the price of starter homes remains close to its record high, price growth has been slowing for six consecutive months now.
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