While pricier homes are seeing modest price growth, affordable homes are quickly increasing in price, according to a new report from Redfin.
Nationally, prices rose by 8.7% year over year in June for the most affordable third of homes nationwide (those priced up to $232,000). On the other end of the spectrum, home prices rose just 1.1% year over year for the most expensive homes. Redfin notes that this is due in part to the fact that supply has been rising for pricier homes and falling for affordable homes.
“For the most expensive tier of homes, supply has been rising on a year-over-year basis since mid-2013. But for the most affordable tier, supply has been dropping since at least 2012, and most months during that period it has dropped by double digits,” Redfin states.
While overall market conditions have improved, with home prices rising a modest 3.4% in June and mortgage rates at their lowest in two years, many shopping for affordable housing may still be struggling as the price for these homes continues to increase.
“Now that the economic expansion is in its 10th year, some working- and middle-class Americans are finally starting to see wage increases significant enough to ready them buy their first homes,” said Redfin chief economist Daryl Fairweather. “But economic growth is a double-edged sword for the housing market. The increase in demand for low- and moderately priced starter homes is pushing up prices for the most affordable segment of the market. Over the next few years, prices for the most affordable homes are likely to continue growing rapidly, pushing homeownership further out of reach for people with lower incomes.”
While prices for the most affordable homes in the country rose, pricier areas such as San Jose have seen a reverse of this trend. Prices for the most affordable third of homes in San Jose dropped 3.8% year over year in June, the fifth consecutive month of declining prices in the category after six straight years of growth.
“I’ve been feeling a slowdown in the Bay Area the past few months. The beginning of summer feels like the end of summer usually does, with prices coming down and inventory up,” said San Jose Redfin Agent Chad Eng. “The cooldown is more pronounced in specific parts of the area, specifically greater San Jose.”