We all know that it’s natural for home prices to rise over time. We all know that home values are outpacing inflation and that home prices have far exceeded wage growth and skyrocketed in most parts of the country to pre-Recession heights. And we all know that housing supply in most parts of the country is at historic lows.
But, do we all know that prices in the least expensive segment of the market have increased the most during these past five years?
Zillow tells us that the housing market’s least expensive segment, the starter home segment, has increased 103.3%. This trend of escalating home prices in this least expensive market segment is far outpacing home prices at the most expensive tier of the market.
According to Zillow, “Owners of starter homes across the country are gaining equity faster than other home owners because the demand for entry-level homes continues to grow faster than supply.”
Increasing prices and scant inventory, along with slower wage growth, student loan debt and the prospect of higher interest rates, have definitely elbowed prospective first time buyers out of the market.
Look at this data! Compare the ages of typical first time buyers (ages 25 – 34 years old) in 1981 to ages of typical first time buyers (age 41) in2017.
Nationwide, this trend is accelerating. In two thirds of the country, price growth is exceeding wage growth. Even where upper and lower tier price growth was relatively even five years ago, data from this past year shows that growth in starter home price growth is pulling ahead.
Lower priced homes with a median price of $80,000 have risen +6.5% while upper tier homes with a median price approaching $280,000 are nearly down -2%.
In Miami-Fort Lauderdale, the least expensive homes are up +102.2% while the most expensive homes are up +40%. In St. Louis, entry-level home prices have increased +20% in the last five years while its most expensive home prices have increased +17%.
Seattle, San Francisco and San Jose are the only outliers in this comparative data…most expensive home prices in these three cities have gained value faster than their respective least expensive home prices. In San Francisco, the least expensive home prices increased +9.5% and its most expensive home prices increased +11.6% in 2017.