As the housing market shifts, demand for lowest-priced homes is strongest, according to an analysis from Zillow, released on Tuesday.
Throughout most of the pandemic, homebuyers shopping in the middle and top-price tiers faced the most competition as inventory was more limited than the lower priced tier. However, as home prices have continued to increase and mortgage rates have risen, resulting in the monthly mortgage payment on a typical mortgage increasing 60% year over year, according to Zillow, more and more buyers are looking at less expensive homes. As a result, inventory for lower priced homes is tightest right now.
At the end of July, housing inventory for the most expensive third of the market was up 11% month over month and 19.3% year over year. In the middle third, inventory was up 12.7% from June and 17.3% from a year ago. In comparison, while inventory in the lowest priced third was up 11.2% from June, it increased just 10.4% year over year. In addition, during the same time period in 2021, inventory in the least expensive third was growing on a monthly basis at nearly twice the rate of the most expensive homes.
While home sales are down year over year across all price points in the U.S., averaging to a 24.1% annual decrease as of June, the decline in sales has been steeper in the high and middle priced tiers than in the lowest price tier. During the week ending June 20, Zillow found that home sales in the lowest price tier were down 14.2% annually, compared to 20.3% and 25.4% annual declines in the mid- and high-priced tiers, respectively.
Industry experts attribute some of the decline in sales of high- and mid-priced homes to homeowners at the top of the housing food chain are holding on to their low mortgage rates and not listing their homes, limiting the amount of inventory available to be sold.
“Buyers are stretched thin when it comes to affordability, and they are flocking to the lowest-priced homes on the market to get their foot in the door,” Nicole Bachaud, a Zillow senior economist, said in a statement “Still, the less frenzied market compared to last year will feel like a breath of fresh air for those buyers who haven’t been priced out.”
As another sign of slowing demand for mid- and high-priced homes, the analysis found that price cuts are more common on upper tier homes. In July, only 10.6% of low-price tier homes underwent price cuts, compared to 11.7% and 11.3% in the mid- and high-price tiers, respectively.
“It’s not yet a buyers market, but it’s becoming a better time to buy, with more time to consider options and less chance of being dragged into a bidding war,” Bachaud said. “Demand is lighter for homes at the top end of the market, and owners appear to be reluctant to sell and move to a different home that will presumably come with a much higher monthly payment at today’s mortgage rates.”
Source: RealTrends