Home prices have leveled off in recent months, but not all buyers are benefiting. A new report shows that while the median home price has flatlined, the cost of a small home in the most affordable tier -- the kinds of homes first-time buyers are looking for -- is surging.
Most national real estate reports provide an overview measuring conditions in all markets and throughout the industry before breaking those numbers down into a national average. Real estate broker Redfin has isolated just one important segment -- homes in the most affordable price range. Those homes got a lot less affordable in June.
“Affordable” means different things in different markets, but that segment generally makes up the lowest-priced homes in a particular market. In San Jose, Calif. -- one of the most expensive markets in the nation -- “affordable” is around $732,000. In Richmond, Va., an affordable home is in the $200,000 range.
Affordable homes rose 8.7 percent
The Redfin report shows sale prices for the most affordable third of homes sold in June surged 8.7 percent year-over-year, making it the second-biggest increase in more than a year. That compares to a 1.1 percent increase in the price of the most expensive homes.
A look at inventory levels might explain the discrepancy. Home builders stay busy turning out luxury homes with high prices because they are more profitable. There is less margin in building a home with an “affordable” price tag.
The supply of homes in the most affordable segment across all housing markets plunged 14.5 percent year-over-year in June. In the most expensive tier of homes, the supply rose by nearly 10 percent.
So when national real estate reports say the inventory of homes is increasing, it really only helps consumers who can afford expensive homes. It provides little relief for consumers hoping to purchase their first home.
According to Redfin, the inventory of the most affordable homes has been consistently dropping since at least 2012, by double digits most months. Daryl Fairweather, Redfin’s chief economist, says that economic expansion has finally put more consumers in a position to purchase a home.
"But economic growth is a double-edged sword for the housing market,” he said. “The increase in demand for low and moderately priced starter homes is pushing up prices for the most affordable segment of the market.”
Fairweather sees no relief in the short term. Over the next few years, he says prices for the most affordable homes are likely to continue growing rapidly, much faster than homes at the expensive end of the scale.