Bidding wars make it harder for entry-level homebuyers to enter the market
First-time home shoppers are more likely to face bidding wars this spring homebuying season than those after more-expensive homes, a new Zillow analysis revealed.
Over the past year, typical home values for least-expensive houses climbed 8% (nearly $13,000) and mid-level homes appreciated by 3%. Meanwhile, the most expensive properties depreciated by 1%, the first loss of value for the top tier since 2012, according to Zillow.
"Buyers shopping for the least-expensive homes this spring aren't noticing much difference from the pandemic-era market heat," said Zillow chief economist Skylar Olsen. "Competition is fierce, but there aren't many homes for sale, so buyers should be patient but prepared to move quickly and anticipate a bidding war once they find a home they love."
Entry-level homes have become more popular during the pandemic, gaining at least 60% more value since February 2020 in seven of the 50 largest markets, with Tampa, Richmond, and Charlotte leading the charge.
Zillow noted that mortgage interest rate hikes impact monthly payments negatively as prices rise. That's why top-tier home values are falling fastest annually in some of the most expensive markets: San Francisco (-14%), San Jose (-11%), and Seattle (-11%).
The "rate lock-in effect," the phenomenon that discourages current homeowners from listing their homes for sale and thus giving up their low mortgage rate, is also contributing to a lower flow of new listings across price tiers, especially on entry-level buyers in expensive West Coast markets.
There are 1% more homes available for sale in the bottom price tier compared to 8% and 13% more in the middle and top tiers. San Jose, San Francisco, Sacramento, Portland and Seattle all have fewer than half as many new bottom-tier listings in March compared to last year, the analysis showed.
"In the recent past, entry-level shoppers had an easier time finding discounts than their well-heeled colleagues, but that comparative benefit is gone now, too," Zillow said. "The share of mid- and top-tier homes that sold above list price rose far above the bottom-tier share through most of the pandemic.
"Super-low rates had cranked up demand for more-expensive houses. But after mortgage rates peaked at 7% last fall, the share sold above list price for all three tiers converged; now they're tracking together."
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