Pending sales of starter homes surged 10.2 percent in July, reaching their highest point since October 2022 as mortgage rates began to decline, according to data released Monday by Redfin.
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Pending sales of starter homes surged 10.2 percent in July, reaching their high level since October 2022, even as other segments of the market remain sluggish, according to a Redfin analysis released on Monday.
The uptick in annual sales is likely due to declining mortgage rates, which began falling in mid-July. Because starter homes typically require smaller down payments, the downward pull on rates has begun to draw curious first-time homebuyers back into the market, Redfin Senior Economist Sheharyar Bokhari said in a statement.
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“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,” Bokhari said. “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.”
In contrast, the sale of middle-tier and upper-tier homes are lagging, with sales of the former declining 6.5 percent in July and the former dipping by 10 percent, according to the Redfin analysis.
In July, the typical U.S. starter home sold for $250,000, up 4.2 percent year over year. That’s sluggish compared to middle- and upper-tier prices, which saw increases of 4.6 percent and 5 percent, respectively.
“Lower-priced homes are really moving right now, especially since rates went down to around 6.5 percent,” said Derrell Skillman, a Redfin Premier agent in San Antonio, where pending sales of starter homes rose 22 percent 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.”
According to Redfin, while closed sales of starter homes dipped 0.6 percent last month compared to 2023, they still outperformed middle- and upper-price homes, which saw declines of 3.9 percent and 3.4 percent, respectively. Given that sales typically lag behind pending sales by a month or more, starter home sales are expected to rise further in August.
“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,” Bokhari said.
The median sale price of starter homes rose most in Detroit, increasing 15.6 percent to $67,500, while the steepest decline was seen in Austin,Texas, where prices dropped 3.9 percent to $326,700.
Increased housing supply has tempered starter home price growth. The number of starter homes on the market grew 18.9 percent year over year, reaching the highest level since October 2022, fueled by an 18.8 percent rise in new listings. Inventory in the middle- and upper-price tiers grew more modestly, by 4.1 percent and 1.6 percent, respectively.
However, inventory remains below pre-pandemic levels. In July 2019, there were around 30 percent more starter homes on the market compared to this year.
Despite the more houses sitting on the market, Texas and Florida metros experienced significant price declines in July year over year.
Austin, San Antonio, West Palm Beach, Florida, Fort Lauderdale, Florida and Dallas saw the largest drops in starter home prices: Austin, Texas (-3.9 percent sales price and 17.4 percent active listings); San Antonio (-2.6 percent sales price and 50.2 percent active listings); West Palm Beach (-2 percent sales price and 34.8 percent active listings); Fort Lauderdale (-1.9 percent sales price and 47.5 percent active listings); and Dallas (-1.6 percent sales prices and 38.5 percent active listings).
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