Prices of Most, Least Expensive U.S. Homes Surge Fastest
Redfin, Seattle, reported luxury home prices soared 26 percent year-over-year in the second quarter, while prices of the most affordable homes grew 19 percent. Both segments outpaced the rest of the market.
By comparison, prices of mid-priced and affordable homes grew just 16 percent and 13.2 percent, respectively, a new report from Redfin found.
“Home prices and sales plummeted at the beginning of the pandemic, but have now more than recovered–especially in the luxury and most affordable price tiers–due to low mortgage rates and strong homebuyer demand during the pandemic,” Redfin Chief Economist Daryl Fairweather said.
Fairweather called surging prices especially problematic for first-time and lower-income homebuyers. “But the good news is that the supply of the country’s most affordable homes is growing,” she said. “That means there could be more homes to choose from and less competition for buyers in that segment of the market.”
Redfin divided all U.S. residential properties into five price tiers, luxury, expensive, mid-priced, affordable and most affordable. The report noted that year-over-year gains may appear especially large due to the housing-market slowdown in second-quarter 2020, when activity stalled due to pandemic restrictions.
Home Sales Rise Fastest in Luxury and Most Affordable Tiers
Purchases of luxury homes in the U.S. surged 88.2 percent year-over-year in the second quarter, while purchases of the most affordable homes rose 56.8 percent. By comparison, purchases of homes in other price tiers increased between 30 percent and 45 percent.
Home sales have soared across the board during the pandemic as Americans have taken advantage of low mortgage rates and the flexibility to work from anywhere. But sales in the luxury and most affordable price tiers have seen especially large increases. “For luxury homes, that’s partly because affluent Americans have reaped the gains of a strong stock market and swelling savings accounts, ” Redfin said. “For the most affordable homes, it’s likely due in part to a rebound in investor activity. Home purchases by real estate investors–who commonly buy lower-priced properties–jumped to a record high in the second quarter. “
Fairweather noted investors are keen on buying up inexpensive properties and turning them into rentals as the pandemic eviction moratorium ends and many Americans are priced out of homeownership. “A relative abundance of homes hitting the market in both the most affordable and luxury tiers has also enabled purchases in these segments to flourish,” she said.
Supply Crunch Less Intense in Bottom and Top of the Market
The number of homes for sale in the most affordable price tier rose 11.3 percent year over year during the second quarter, Redfin reported. The next-biggest increase was in the luxury tier, which saw supply grow 1.3 percent. Supply in the remaining three tiers either declined or grew less than 1 percent.
“The government’s pandemic mortgage forbearance program is coming to an end, which is likely boosting the supply of America’s most affordable homes,” Fairweather said. “Some homeowners are putting their properties on the market because they’re concerned about being foreclosed upon when forbearance dries up, while other owners of affordable homes are selling because they want to avoid the increase in seller competition that’s likely to occur when forbearance ends.”
