"Despite fewer entry-level homes available than in 2019, views per property have fallen below their 2019 level, according to the latest Housing Alignment Report from Realtor.com," the website said on Wednesday. "If demand for cheaper homes had held steady, scarcer supply should have driven more attention to each listing."
"The disproportionate supply growth in higher tiers combined with the exodus of entry-level demand indicates a market increasingly out of reach for price-sensitive buyers," says Jiayi Xu, senior economist at Realtor.com.
That creates a classic K-shaped graph. The K's left-hand vertical line is the left axis. The upward stroke shows increased activity among the affluent, while the downward one describes diminishing activity among the less well-off.
Property Sales and Listings by the Numbers
The number of home sales with prices below $200,000 dropped 14% over the 12 months ending in May this year, reports Realtor.com. At the same time, properties priced between $1 million and $2 million fell by just 0.6%.
But it's not just sales figures that count. Many less prosperous people seem to have given up on the homeownership dream.
In 2021, half of the listings on Realtor.com were for homes priced below $370,000, and those accounted for 54.2% of views. Now, homes in that price bracket comprise just 42.2% of listings and receive 42.8% of all views.
In other words, affordably priced starter homes now make up a smaller share of listings, while buyer interest in them has dropped even more sharply over the last five years.
The story is very different at the luxury end of the market. There, inventory is sharply up on 2019 levels, and page views for each property are approximately unchanged.
The Affordability Gap
A lot of this K-shape is a result of affordability. Over 40% of homes sold above $1 million went to cash buyers. That rises to over 50% for more properties over $2 million.
Meanwhile, those with an annual household income of $75,000 can afford to buy only 23% of listings nationwide. If the market were in balance, they could afford 44% of listings, according to joint research by Realtor.com and the National Association of Realtors.
Back in 2019, immediately before the pandemic, buyers on average needed about $43,000 in household income to purchase the typical starter home. Now, they need $78,000.
Meanwhile, prospective first-time buyers living in the 50 biggest metros are trapped by rents that are more affordable than homeownership. On average, they save $858 each and every month by remaining renters rather than home buyers.
Zillow Concurs With the Finding
It's not just Realtor.com that's reporting this K-shaped housing market. At the end of July, Zillow observed the same phenomenon (we quote):
- There are 4.5% more starter homes available than there were last year, price cuts are more common and there are fewer bidding wars. Yet starter home sales fell 5.4% in May, according to new Zillow data.
- The starter home sales slowdown is especially stark when compared to a booming luxury sector. Luxury sales are up 6.2% year over year, as of May.
Zillow saw this as an opportunity for those who want to buy starter homes. "The best time to buy a home is when nobody else wants to," said Kara Ng, senior economist at Zillow.
"Starter home buyers today have more options, more negotiating power, and sellers who are more willing to deal," continued Ng. "The challenge is that the same financial pressures making it harder to save for a down payment are also making it harder to take advantage of that opportunity."
Redfin Highlights First-Time Buyers' Salary Hurdles
On Aug. 5, Redfin published a new report, The Income Needed to Afford Typical American Home Holds Steady Near Record High of $110,000.
That sounds scary. But, actually, things are getting slightly easier.
"The income needed to buy a home is roughly $22,000 above what the typical U.S. household earns," says Redfin. "But the gap is shrinking: it was $26,000 a year ago, and $29,000 two years ago."
In a statement, a Redfin economist echoed the point made by Zillow's Ng:
"The earnings needed to buy a house have stabilized after several years of deterioration, but that doesn't mean homes are affordable to the average American," said Redfin Senior Economist Yingqi Xu. "There's still a double-digit gap between what the typical household earns and what they need to comfortably buy a home, leaving many prospective first-time buyers stalled on the sidelines.
"But even if the market isn't becoming much more affordable, it is becoming a bit more manageable for house hunters," continued Xu. "It's a buyer's market in most of the country, especially places that were once pandemic homebuying hotspots like Nashville and Austin, giving buyers lots of options to choose from and strong negotiating power."
