Sales of starter homes are outperforming the rest of the residential market – reaching their highest level in three years, according to a new analysis by Redfin of data for August.
Data shows starter home prices have risen remarkably over the past decade. In 2015, the median sold for $109, 283. By August this year their median sale price climbed to $260,508, a record. It was 2.2% higher than the previous year, and the number of starter homes sold rose 3.8% year over year. Pending sales were also up, compared to declines in the higher price brackets.
In contrast, the number of mid-priced homes sold fell 0.6% year over year in July at a median price of $370,000 – up 1.4% year over year. Similarly, there were 1.2% fewer sales of high-priced homes at a median price of $575,000 – up 2.7% year over year.
Geography, however, makes a big difference. The median price of a starter home in Anaheim, CA is $760,279, up 3.7% year-over-year and the median time for it to be on the market is 46 days. In Austin, the median starter home would cost $320,107, down 4.5% year-over-year, and might take 70 days to sell. Starter homes in some Florida metros could also sit on the market for months. In West Palm Beach, the median cost would be $278,016, down 1.2% year over year, and would take 102 days to sell. In Fort Lauderdale, the wait for a sale might take 109 days and in Miami 87 days.
Starter homes sold fastest in Indianapolis (median 16 days), Seattle (17 days), Warren, MI (20 days) and Kansas City (20 days). The cities with the highest increases in starter home prices were Milwaukee (14.9% to $218,456), Detroit (13.7% to $98,985) and Pittsburgh (10.3% to $139,337).
But while starter homes may be selling faster than more expensive properties because they are more affordable, affordability is still a huge burden even though mortgage rates have eased slightly, one Redfin agent commented. First-time buyers also face tough competition from downsizers who can use the equity from their current houses to outbid the competition. “That means entry-level buyers are often losing out to move-up buyers who have deeper pockets,” the agent stated.
One factor keeping prices for starter homes in check despite strong demand is that there are so many of them on the market. Active listings rose 16.4% year-over-year, compared to just 13.4% and 12,5% for mid- and high-priced homes. The report warned, however, that inventory growth in all cases is slowing.
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