The real estate market has remained low this year, but one area of the market is making a comeback.
Sales of entry-level homes — homes priced in roughly the bottom third of real estate values — rose 10.2% in July compared to the same period last year, to their highest level since October 2022, according to a report from Redfin.
The increase in home sales for first-time buyers is due to them taking advantage of lower mortgage rates and the increasing number of homes on the market.
“The overall market remains sluggish, but we are seeing the number of first-time home buyers slowly declining, spurred by falling mortgage rates and an increasing number of homes on the market,” said Redfin economist Sheharyar Bokhari.
Mortgage rates have been falling in recent weeks, with the 30-year mortgage rate falling to its lowest level in over a year earlier this month.
This was enough to attract many first-time buyers who have a large down payment for a smaller purchase and therefore feel a greater impact of changes in mortgage rates on their monthly payments.
Entry-level home prices, while still high, are rising more slowly than mid- and high-end homes. The average entry-level home sold for a record $250,000 in July, up 4.2 percent from a year earlier. However, mid- and high-end home prices rose 4.6 percent and 5 percent, respectively.
“It’s not just young families and investors who are interested in a first-time home, but also buyers who are forced to look for cheaper alternatives due to record-high property prices,” says Bokhari.
But despite the increased demand for entry-level homes, prices have not skyrocketed because supply is steadily increasing at the same time, says Bokhari.
The number of entry-level homes on the market increased 18.9% year over year, the largest inventory of such homes since October 2022.
This growth exceeds overall housing supply in the United States, which saw a record increase of 14 percent in July.
