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Entry-level home prices rise even as market begins to stabilize

The bottom third of the housing market has grown increasingly competitive, with fewer price cuts on listed homes and faster growing home values than more expensive homes, according to May's Zillow Real Estate Market Reports.

Couple walking towards vertical house outline

Home values for the most expensive homes on the market, which at one point in February 2014 were growing at an average of 7 percent annually, have stabilized. Those homes have been gaining value at about 4 percent each year since the beginning of 2015.

Home values at the bottom of the market continue to grow at about 8 percent a year.

The stark differences between the top and bottom of the housing market shed light on the two very different experiences home buyers will face in most markets this summer. Buyers looking for the most expensive homes will find slashed prices, more options and less competition. It's a much different story for entry-level buyers, who will be up against rising prices, low inventory and tough competition, with homes selling over asking price in many of the nation's hottest housing markets.

Over the past 18 months, the percent of listings with a price cut among the most expensive third of homes has slightly increased, while the percent of listings with a price cut among entry-level homes have decreased. Since the beginning of 2015, top-tier homes have had the most price cuts – another sign that top-tier buyers are having an easier time shopping for homes in the current market.

The rental market is also stabilizing at the high end. A recent Zillow analysis found that rents aren't rising as quickly for apartments in more expensive zip codes.

"The top of the market is starting to stabilize, and people are beginning to take notice," said Zillow Chief Economist Dr. Svenja Gudell. "Buyers looking for entry-level homes are having bidding wars in many markets, while it's not uncommon for high priced homes to stay on the market a few months longer. The housing market is much more forgiving for current homeowners looking to move into a bigger, more expensive home. These buyers can be a bit more selective, and may even get a good deal."

Buyers looking for a home at the top of the market will have more to choose from than those looking for a home in the bottom third of the market, which are often sought after by first-time homebuyers. The number of homes for sale at the top of the market has remained flat over the past year, while inventory in the bottom-third is down almost 9 percent. Some markets are worse than others; in Portland, there are almost 40 percent fewer entry-level homes for sale than a year ago.

Mike Wheatley

Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at mike@realtybiznews.com.

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