In a reversal of a pandemic trend, competition for low-priced homes has surpassed that for mid- and high-priced homes, according to a new Zillow analysis.
July saw inventory rise 11% month-over-month and 19.3% YOY in the most expensive third of the housing market, while the middle third also saw a 12.7% MOM and 17.3% YOY increase.
Inventory grew by only 11.2% MOM and 10.4% YOY in the lowest-priced tier.
A year ago, the inventory of the lowest-priced homes was growing twice as fast as expensive homes, and the upper tiers saw the strongest competition, the reverse of this month’s trend.
“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,” said Zillow senior economist Nicole Bachaud.
“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.”
Home sales across all three levels are down, but there have been sharper declines for middle- and high-priced homes. Home sales in the lowest price tier were down only 14.2%, compared to 20.3% for middle-tier and 25.4% for high-tier homes.
These two tiers have also seen more price cuts than less expensive homes as sellers face difficulty finding buyers.
“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. 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,” said Bachaud.
Higher mortgage rates are keeping some Americans in their homes longer than they normally would be. Some homeowners are experiencing what Redfin calls “rate lock-in,” a fear of putting their home up for sale due to a low rate they nabbed during the pandemic.
“Buyers are backing off due to rising housing costs and sellers are holding back because they realize they won’t get the bidding war they would have gotten six months ago,” said Redfin Deputy Chief Economist Taylor Marr.
“The good news is this is bringing balance to the market. If mortgage rates resume their downward trajectory, more buyers and sellers could get back in the game.”