Starter homes across the U.S. are gaining equity faster than any other type of home on the market, according to a recent report by Zillow. In fact, over the past year, the report notes that homes in the most affordable segment of the market—typically desired by first-time buyers— gained 8.5 percent in value, compared to a 3.6 percent gain for the most expensive homes.
To determine this, Zillow divided the U.S. housing stock into equal thirds based on value and determined the median value of the most and least valuable homes. Looking back at the past five years provides an even more significant difference, as people who own starter homes have experienced an increase in equity by 44.4 percent, meanwhile, owners of top-tier homes fall behind only gaining 26.6 percent.
"When the housing market crashed, owners of the least valuable homes were especially hard hit, and lost more home value than homeowners at the upper end of the market," said Zillow Senior Economist Aaron Terrazas. "Since then, though, demand for less expensive, entry-level homes has built steadily, causing prices to grow rapidly. As a result, these homeowners have been able to build wealth at a faster pace than owners of more expensive homes."
While the home value appreciation among more affordable homes serves as a major benefit for the consumers who already own those homes, there is a struggle for buyers to enter the market as demand for entry-level homes continues to grow faster than supply. Zillow’s analysis discovered that the market is limited and competitive—as nearly 18 percent fewer entry-level homes are available on the market compared to a year ago.
Regionally and among the largest U.S. housing markets, owners of the most affordable homes in Tampa, Florida are experiencing the greatest gains in home equity, with a 20.4 percent increase in value. Las Vegas homeowners come next with affordable homes appreciated 19.9 percent from last year.
San Francisco, Seattle and San Jose, California are the only large markets where the most expensive homes are gaining value faster than starter homes, the report noted.
To view the full report, click here.