Redfin Reports Starter Homes Emerge as Bright Spot as Mortgage Rates Settle Near 15-Month Low

Rhea-AI Summary

Redfin's report reveals a surge in starter home sales amidst a generally sluggish real estate market. Pending sales of starter homes increased by 10.2% year-over-year in July, reaching the highest level since October 2022. This growth contrasts with declines in middle-price (-6.5%) and upper-price (-10%) home sales.

The uptick in starter home activity is attributed to falling mortgage rates and increased inventory. The typical U.S. starter home sold for a record $250,000 in July, up 4.2% year-over-year. Inventory of starter homes rose by 18.9%, helping to moderate price growth.

Notable regional variations include price declines in major Texas and Florida metros, coupled with significant inventory increases. The report suggests a potential revival for first-time homebuyers in an otherwise challenging market.

Positive

• Pending sales of starter homes increased by 10.2% year-over-year in July
• Typical U.S. starter home price reached a record $250,000 in July, up 4.2% year-over-year
• Inventory of starter homes rose by 18.9%, helping to moderate price growth
• New listings of starter homes increased by 18.8%

Negative

• Pending sales of middle-price homes fell 6.5% year-over-year in July
• Pending sales of upper-price homes decreased by 10% year-over-year
• Closed sales of starter homes fell 0.6% compared to the previous year
• Overall market remains sluggish despite improvements in the starter home segment

Insights

Real Estate Analyst

The surge in starter home sales amid a broader market slowdown is a significant development. This 10.2% year-over-year increase in pending sales for starter homes, contrasting with declines in other segments, signals a potential shift in market dynamics. The 18.9% increase in starter home inventory is particularly noteworthy, as it's helping to balance supply and demand, keeping price growth more moderate at 4.2% compared to other tiers.

The regional variations, especially the price declines in Texas and Florida metros coupled with substantial inventory increases, suggest localized market corrections. This could present opportunities for first-time buyers in these areas. However, it's important to note that despite recent increases, inventory levels remain 30% below pre-pandemic levels, indicating that the market is still tight by historical standards.

The correlation between falling mortgage rates and increased starter home activity underscores the sensitivity of this market segment to financing conditions. If rates continue to stabilize or decrease, we could see sustained momentum in this sector, potentially kickstarting a broader market recovery.

Financial Analyst

The divergence in performance between starter homes and higher-priced segments is a key indicator of market segmentation. The 10.2% growth in starter home pending sales versus declines of 6.5% and 10% in middle and upper tiers respectively, suggests a shift in buyer demographics and preferences.

From an investment perspective, this trend could impact real estate investment trusts (REITs) and homebuilders differently based on their market focus. Companies targeting first-time buyers or with significant exposure to starter home markets may see improved performance in the near term.

The regional price declines in Texas and Florida, coupled with inventory increases, warrant attention. These markets have been hot spots in recent years and this shift could signal a broader rebalancing. Investors should monitor these areas for potential ripple effects on local economies and related industries.

The report's data on days-on-market across different metros provides valuable insights into liquidity and demand variations, important for understanding regional market health and potential investment opportunities.

Market Research Analyst

The resurgence in starter home activity amidst a sluggish broader market highlights a significant shift in consumer behavior and market dynamics. The 10.2% year-over-year increase in pending starter home sales, contrasted with declines in other segments, suggests a growing demand from first-time buyers and investors targeting this market niche.

The substantial 18.9% increase in starter home inventory is a key factor moderating price growth in this segment. This surge in supply, driven by an 18.8% rise in new listings, is creating a more balanced market for entry-level homes. However, the fact that inventory remains 30% below pre-pandemic levels indicates there's still room for growth in this segment.

Regional variations, particularly in Texas and Florida metros, where prices are declining and inventory is rapidly increasing, suggest localized market corrections. These trends could reshape migration patterns and investment strategies in these previously hot markets. The varying speeds of sales across different metros, from 7 days in Seattle to 81 days in Fort Lauderdale, further underline the importance of local market knowledge for both buyers and sellers.

Pending starter home sales grew 10% in July year over year, while other price brackets fell

SEATTLE--(BUSINESS WIRE)-- (NASDAQ: RDFN) — Pending sales of starter homes climbed 10.2% year over year in July to the highest level since October 2022, according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage. This shows that there may be signs of life for first-time homebuyers at the lower end of an otherwise sluggish market.

Pending sales of middle-price homes (where the sales price was in the 35th-65th percentile of the market) fell 6.5% in July compared to a year earlier, while upper-price homes (65th-95th percentile) fell even more, down 10%.

Redfin Home Tiers	Home Value Percentile	Sale Price YoY (July)	Median List Price YoY (July)	Pending Sales YoY (July)	Homes Sold YoY (July)	Active Listings YoY (July)
Starter	5%-35%	4.2%	8.4%	10.2%	-0.6%	18.9%
Middle	35%-65%	4.6%	6.8%	-6.5%	-3.9%	4.1%
Upper	65%-95%	5%	6.8%	-10%	-3.4%	1.6%
Luxury	Top 5%	7.9%	8%	-7.9%	-1.7%	9%

One reason starter home pending sales may be strengthening is the recent fall in mortgage rates, which began in mid-July. First-time homebuyers, who make up a significant proportion of the starter-home market, are more sensitive to rate drops as they are less likely to have a large downpayment, meaning rate changes have a greater impact on their monthly payments.

“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,” said Redfin Senior Economist Sheharyar Bokhari. “Not only do you have young families and investors looking at starter homes, you also have buyers who have been forced to consider less-expensive options due to near-record home prices. More buyers means more sales, but so far we aren’t seeing prices skyrocket, because the rising number of homes hitting the market is enough to satisfy the increased demand—a positive outcome for both buyers and sellers.”

Starter home sales dipped slightly, but outperformed other price tiers

Closed sales of starter homes fell 0.6% last month compared to a year earlier, but still outpaced middle- and upper-price homes, which fell 3.9% and 3.4%, respectively.

Movement in sales results typically trails pending sales by a month or more, due to the time it takes for a home sale to close. That means future starter home sales should strengthen even more in August due to July’s spike in pending sales.

“Lower-priced homes are really moving right now, especially since rates went down to around 6.5%,” said Derrell Skillman, a Redfin Premier agent in San Antonio, where pending sales of starter homes rose 22% last month. “We are seeing a lot of younger buyers looking at smaller starter homes. They don’t want a big backyard and a pool, they just want something efficient, with minimal ongoing maintenance required.”

Starter home prices rising more slowly than other tiers as inventory soars

The typical U.S. starter home sold for a record $250,000 in July, up 4.2% year over year. That price growth was slower than middle- and upper-price tiers, which rose 4.6% and 5% respectively.

Increased inventory levels helped to keep starter home price growth lower than other brackets. The number of starter homes on the market spiked 18.9% year over year to the highest level seen since October 2022, pushed by an 18.8% rise in new listings. Meanwhile, inventory in the middle- and upper-price tiers increased by just 4.1% and 1.6%, respectively.

Despite the increase, it’s worth noting that inventory is still sitting well below pre-pandemic levels. For example, there were roughly 30% more starter homes on the market in July 2019 than July this year.

Starter home prices fall in Texas and Florida metros as inventory piles up

Major Texas and Florida metros saw some of the biggest declines in home prices in July, year over year, aided by significant spikes in inventory. The five metros which saw the biggest decline in price were Austin, TX (-3.9% sales price, +17.4% active listings), San Antonio (-2.6% sales price, +50.2% active listings), West Palm Beach, FL (-2% sales price, +34.8% active listings), Fort Lauderdale, FL (-1.9% sales price, +47.5% active listings) and Dallas (-1.6% sales price, +38.5% active listings).

Metro-Level Starter Home Highlights: May-July 2024

• Prices: The median sale price of starter homes rose most in Detroit (15.6% increase to $67,500), Newark, NJ (15.4% increase to $375,000) and Pittsburgh (13.6% increase to $117,000). Its largest falls were in Austin, TX (-3.9% to $326,700), San Antonio (-2.6% to $202,500) and West Palm Beach, FL (-2% to $245,000).
• Sales: Starter home sales increased most in San Francisco (18.7%), San Jose, CA (14.5%) and Cincinnati, OH (12.4%). They decreased most in Fort Lauderdale, FL (-19.6%), West Palm Beach, FL (-17.2%) and Phoenix (-11.9%).
• Active listings: The total number of starter homes for sale increased most in San Antonio (50.2%), Fort Worth, TX (49.6%) and Tampa, FL (48.1%). Only one metro—Milwaukee—saw a fall in active listings (-4.1%).
• New listings: New listings of starter homes increased most in Fort Worth, TX (40.4%). Nassau County, NY (39.5%) and San Antonio, TX (38.3%). New listings fell in Atlanta (-6.5%) and Milwaukee (-5.2%).
• Speed of sales: Starter homes sold fastest in Seattle with a median of seven days, followed by Montgomery County, PA (11 days) and Warren County, MI (12 days). They sold slowest in Fort Lauderdale, FL (81 days), West Palm Beach, FL (77 days) and Miami (67 days).

To view the full report, including charts, methodology and metro-level data please visit: https://www.redfin.com/news/starter-homes-july-2024

About Redfin

Redfin (www.redfin.com) is a technology-powered real estate company. We help people find a place to live with brokerage, rentals, lending, title insurance, and renovations services. We run the country's #1 real estate brokerage site. Our customers can save thousands in fees while working with a top agent. Our home-buying customers see homes first with on-demand tours, and our lending and title services help them close quickly. Customers selling a home can have our renovations crew fix it up to sell for top dollar. Our rentals business empowers millions nationwide to find apartments and houses for rent. Since launching in 2006, we've saved customers more than $1.6 billion in commissions. We serve more than 100 markets across the U.S. and Canada and employ over 4,000 people.

Redfin’s subsidiaries and affiliated brands include: Bay Equity Home Loans®, Rent.™, Apartment Guide®, Title Forward® and WalkScore®.

For more information or to contact a local Redfin real estate agent, visit www.redfin.com. To learn about housing market trends and download data, visit the Redfin Data Center. To be added to Redfin's press release distribution list, email press@redfin.com. To view Redfin's press center, click here.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240826267676/en/

Redfin Journalist Services:

Kenneth Applewhaite

press@redfin.com

Source: Redfin

FAQ

What was the year-over-year change in pending sales for starter homes in July 2023 for Redfin (RDFN)?

According to Redfin's report, pending sales of starter homes increased by 10.2% year-over-year in July 2023.

How did Redfin (RDFN) define starter homes in their July 2023 report?

Redfin defined starter homes as properties with sale prices in the 5th to 35th percentile of the market.

What was the median sale price for starter homes in July 2023, according to Redfin (RDFN)?

The typical U.S. starter home sold for a record $250,000 in July 2023, as reported by Redfin.

How did the inventory of starter homes change year-over-year in July 2023 for Redfin (RDFN)?

Redfin reported that the number of starter homes on the market increased by 18.9% year-over-year in July 2023.

Which metro area saw the largest increase in starter home sales from May to July 2023, according to Redfin (RDFN)?

Redfin's report shows that San Francisco had the largest increase in starter home sales at 18.7% from May to July 2023.