Affordable housing has long been in short supply for low-income households, but data released on Monday by Redfin showed positive signs for the starter home segment.
According to Redfin, pending home sales increased 10.2% year over year in July, reaching their highest level since October 2022. This was in stark contrast to three other market segments that saw pending sales decline compared to July 2023.
In addition, price growth for entry-level homes — defined as properties that are in the bottom 35 percent of the local market — has been slower than for other segments. Entry-level home sales prices rose 4.2 percent in the year to the end of July, compared with increases of 7.9 percent for luxury homes, 5 percent for high-end homes and 4.6 percent for mid-range homes.
Even though pending sales of entry-level homes in the nation’s 50 largest metropolitan areas rose year-over-year in July, the number of homes going under contract in other price ranges declined. Mid-range homes (in the 35th to 65th percentile) saw 6.5% fewer pending sales compared to July 2023. Pending sales of high-end homes (in the 65th to 95th percentile) and luxury homes (in the top 5%) declined 10% and 7.9%, respectively.
Redfin found that the typical U.S. entry-level home sold for a record $250,000 in July. But increased inventory in this segment kept appreciation lower compared to other price ranges. The number of entry-level homes listed for sale last month rose 18.9% year-over-year to the highest level since October 2022.
Still, inventory is down from pre-pandemic levels, with the number of entry-level homes on the market about 30% lower last month than in July 2019.
“The overall market remains sluggish, but we are seeing the number of first-time home buyers slowly retreat, spurred by falling mortgage rates and an increasing number of homes on the market,” Sheharyar Bokhari, senior economist at Redfin, said in a statement.
“Not only are there young families and investors looking for homes, but there are also buyers forced to consider cheaper alternatives due to near-record high property prices. More buyers mean more sales, but so far we are not seeing prices skyrocketing as the increasing number of homes coming onto the market is enough to meet the increased demand – a positive outcome for both buyers and sellers.”
The growth in pending sales data will likely be reflected in the number of homes sold in August and September. In July, completed sales remained lower on a year-over-year basis across all price ranges, ranging from a 0.6% decline in the entry-level segment to a 3.9% decline in the mid-range segment.
According to Redfin, Sun Belt markets, previously driven by post-pandemic migration, continued to cool. The five metro areas with the largest price declines in the entry-level home segment over the past year are in Texas and Florida. This is “supported by significant spikes in inventory,” the brokerage reported. Active listings for entry-level homes increased 17 to 50 percent in the Texas markets of Austin, San Antonio and Dallas, and in the Florida markets of West Palm Beach and Fort Lauderdale.
“Right now, affordable homes are in high demand, especially since prices have dropped to around 6.5%,” Derrell Skillman, a San Antonio-based Redfin agent, said in the report. “We’re seeing a lot of younger buyers looking at smaller, entry-level homes. They don’t want a big yard or a pool, they just want something efficient that requires minimal ongoing maintenance.”
Entry-level home prices rose the most last year in Detroit (+15.6%), Newark, New Jersey (+15.4%) and Pittsburgh (13.6%). Sales of these homes rose the most in San Francisco (+18.7%), San Jose (+14.5%) and Cincinnati (+12.45%). Entry-level homes spent the shortest time on the market in Seattle (an average of seven days), Montgomery County, Pennsylvania (11 days) and Warren County, Michigan (12 days).
