SEATTLE, WA — The latest report from Redfin reveals a notable 10.2% increase in pending sales of starter homes in July, marking the highest level since October 2022. This uptick suggests a revival in the market for first-time homebuyers, contrasting with the overall sluggishness seen in other market segments.
Middle-price homes, with sales prices in the 35th-65th percentile, saw a 6.5% decline in pending sales year-over-year, while the upper-price homes, in the 65th-95th percentile, fell by 10%. This divergence highlights the growing appeal of starter homes as mortgage rates began to decline in mid-July. First-time buyers, who typically have smaller down payments, are particularly sensitive to interest rate drops, which impact their monthly payments significantly.
Redfin Senior Economist Sheharyar Bokhari commented, “The overall market remains sluggish, but we are beginning to see first-time homebuyers come off the sidelines, buoyed by falling mortgage rates and an increased number of homes hitting the market.” He noted that the influx of buyers includes young families and investors seeking more affordable options due to soaring home prices.
Despite a slight 0.6% dip in closed sales of starter homes compared to last year, this segment still outperformed both middle- and upper-price homes, which saw decreases of 3.9% and 3.4%, respectively. The usual lag between pending and closed sales suggests that starter home sales will likely gain further strength in August following July’s pending sales surge.
Redfin Premier agent Derrell Skillman, based in San Antonio, observed, “Lower-priced homes are really moving right now, especially since rates went down to around 6.5%.” He noted a trend among younger buyers gravitating towards smaller, more efficient homes with minimal maintenance needs.
In terms of pricing, the average U.S. starter home sold for a record $250,000 in July, reflecting a 4.2% increase from the previous year. This growth rate was slower than that of middle- and upper-price tiers, which saw increases of 4.6% and 5%, respectively. A significant factor in this moderation is the rise in inventory levels, with available starter homes jumping 18.9% from last year—the highest since October 2022—thanks to an 18.8% hike in new listings.
However, inventory levels remain below pre-pandemic figures, with about 30% fewer starter homes available compared to July 2019. Interestingly, Texas and Florida metros experienced some of the most significant price declines due to substantial inventory growth. Austin, TX, saw a 3.9% drop in sales prices with a 17.4% rise in active listings, while San Antonio experienced a 2.6% price decrease alongside a 50.2% increase in listings.
On a metro level, Detroit, Newark, NJ, and Pittsburgh led in price increases, while Austin and San Antonio faced the steepest declines. Sales grew most in San Francisco and San Jose, CA, but fell sharply in Fort Lauderdale, FL, and West Palm Beach, FL. Inventory surged in San Antonio, Fort Worth, TX, and Tampa, FL, with Milwaukee being the only metro to record a decrease.
The starter home market, with its burgeoning sales and steady inventory growth, offers a glimmer of hope for first-time buyers amid challenging economic conditions. As mortgage rates continue to influence buyer behavior, the coming months will be crucial in determining if this positive trend persists.
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