With demand for homes cooling amid a market scarred by high mortgage rates, lower-priced homes are now attracting the most competition, according to a new study.
Demand for the lowest-priced homes on the market is now attracting more competition than mid-priced and luxury homes, a reversal of the pandemic market when low mortgage rates allowed homebuyers to get more for their dollar, according to a study released Tuesday by Zillow.
Monthly mortgage payments are now 60 percent higher than they were a year ago, likely forcing most homebuyers to look for the least expensive homes they can find.
“Buyers are stretched thin when it comes to affordability, and they are flocking to the lowest-priced homes on the market to get their foot in the door,” Zillow Senior Economist Nicole Bachaud said in a statement. “Still, the less frenzied market compared to last year will feel like a breath of fresh air for those buyers who haven’t been priced out.”
Bachaud clarified that while the market is less competitive than it was a year ago, it’s still far from a buyers market.
“It’s not yet a buyers market, but it’s becoming a better time to buy, with more time to consider options and less chance of being dragged into a bidding war,” she said. “Demand is lighter for homes at the top end of the market, and owners appear to be reluctant to sell and move to a different home that will presumably come with a much higher monthly payment at today’s mortgage rates.”
While the market shift has brought about shifts in inventory, price cuts, and more negotiating power for buyers, overall prices remain at historic highs and have shown little sign of budging despite a growing share of sellers being forced to reduce their asking prices.
At the end of July inventory of the most expensive homes was up 11 percent month over month and up 19.3 percent from a year earlier. Inventory of homes in the midrange of prices was up 12.7 percent monthly and 17.3 percent annually, while inventory of the lowest priced houses was up 11.3 percent monthly and 10.4 percent compared to 2021, according to Zillow.
Home sales at all price points were lower than they were at the same point in 2021, which saw more home sales than any year since 2006. However, the year-over-year sales decline was steeper in the high and mid-point price ranges than the lowest price range, which were down 14.2 percent annually compared to 20.3 and 25.4 percent in the mid and high priced tiers, according to the report.