DataIndustry News

First-time homebuyers facing backlash of improving housing market

Luxury prices falling, starter homes rising
  • First-time homebuyers in the bottom-third price tier are seeing more competition and harder entry into home purchasing.
  • Zillow's data shows that luxury homes are seeing more price cuts, while some entry-level homes are being sold over asking price.
  • Miami is the only market where inventory levels are increasing across the board.

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Buying a home for a first-timer is exciting. Aside from the actual transaction, the hunt for a home and figuring out wants versus needs is part of the process. And then, when you do secure that home, it’s nothing short of a celebration for you and your client.

However, an increasing problem for first-time homebuyers scouring the bottom price tiers of homes is competition.

Since when did luxury become cheap, and how did entry-level become out of reach?

Zillow broke down housing prices around the U.S. into thirds to determine where the catch is in the system. In looking at its home price data in three price structures, Zillow extrapolated where first-time buyers are struggling the most with increasing entry-level home prices and waning inventory in the fastest-growing markets in the country.

Cheap luxury?

In the report, Zillow reveals the strange turn of events for luxury home prices: Demand is sinking, and home prices are getting slashed.

“The top of the market is beginning to stabilize, and people are beginning to take notice,” Zillow’s chief economist, Dr. Svenja Gudell, said in a press release.

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For the past year-and-a-half, noticeable price cuts have increased among homes in the top 30 percent of home prices, according to Zillow. On the flip side of that, price cuts are fewer and further between for homes in the bottom tier.

Depending on how one chooses to look at this, it basically means that luxury homes are easier to get for people who already have money, and competition for affordable homes for first-time buyers is much more fierce.

“Buyers looking for entry-level homes are having bidding wars in many markets, while it’s not uncommon for high-priced homes to stay on the market a few months longer,” Gudell said.

Zillow inventory data first-time

Zillow data showing inventory levels and median home values in three tiers.

Where entry-level homes are hard to come by

According to Zillow Home Value Index (ZHVI), the median home value in Los Angeles is $571,200. Homes with values that rest in Zillow’s bottom third tier have gradually increased, most recently seeing a 7.2 percent gain. The inventory of these homes, conversely, has dropped nearly 17.9 percent.

Similar to L.A.’s lack of available housing in the bottom tier is Washington D.C. Home values in D.C. have increased in the top, middle and bottom tiers incrementally, climbing 1.7 percent, 2.3 percent and 4 percent, respectively. However, homes available in the bottom tier have dropped 18.3 percent, while those in the top tier only increased 3.3 percent year-over-year.

The values of Baltimore’s homes has barely climbed across the board (none of the three tiers showed value growth over 2.1 percent), but availability has dropped in all three categories. Baltimore’s ZHVI is $250,900, and available homes in the bottom third of Zillow’s data have decreased 13.1 percent.

Although New York City did see its biggest inventory change at the bottom tier, which fell 12.2 percent, its biggest price change came at the top tier, increasing 5.1 percent to help bring median home value to $386,000.

In Chicago, home availability in the middle tier has dropped the most, sliding 23.3 percent year-over-year. Median home value in Chicago is $197,300, and home values according to ZHVI climbed only 2.2 percent, 3.1 percent and 4.8 percent, from top to bottom.

Sammy Sosa's just-sold Miami pad.

Miami’s luxury housing market is growing. / Drossner Realty

Miami is showing growth in all three tiers of homes, both in median home value and availability. Median home value in Miami is $234,300, and availability has jumped 14.3 percent, 12.6 percent and 3.5 percent in top, middle and bottom tiers, respectively.

Zillow does not have data for Austin, Houston or San Antonio inventory levels, but all cities have shown growth in median home values in all three price tiers. Median home price in Austin is $251,300, $172,000 in Houston and $151,700 in San Antonio.

In San Francisco (where some experts believe another housing bubble is imminent), there is another oddity that defies the practicality of affordable housing. Median home value in San Francisco is a staggering $810,000, with home values climbing nearly 10 percent in all tiers.

Also, available homes in the top tier have jumped 11.8 percent, while available homes in the middle and bottom tier have dropped 2.5 percent and 9.5 percent.

The conclusion Zillow makes is that if your client is looking to move into something a bit bigger, they are going to have a much easier time securing a home.

But first-time buyers are struggling as less inventory is available, forcing many homes to be sold over asking price and putting them out of reach for some buyers.

Email Britt Chester