- Starter home values are rising at a faster clip than luxury homes, according to Zillow.
- The trend has been in place for at least five years, but signals that the shortage of affordable housing could get worse.
- Rising values are beneficial to owners of starter homes, but not great for people hunting for an affordable house.
The owners of cheaper houses are getting more bang for their buck compared to owners of luxury homes, according to Zillow.
That’s because starter homes are rising in value faster than luxury properties, and have been for at least five years, a report released Friday showed. Affordable houses are in short supply, but the opposite is the case for luxury houses in many large markets.
For this analysis, Zillow divided the housing market into equal thirds based on price ranges. It found that owners of starter homes in the bottom tier gained 44.4% in equity value over the past five years. But that pace dropped to 27% for owners of homes in the top third.
It’s been a similar pattern over the past year: an 8.5% gain for the bottom tier, and 3.6% for the top tier. Of course, the nominal gains for luxury homeowners are likely to be higher in absolute dollar terms. But they’re smaller as a percentage of the total investment.
Rising home values benefit people who already own affordable housing, while presenting a challenge for new buyers.
This trend is not new, but illustrates why first-time buyers – many in the millennial age range of roughly 18-35 – could continue to face a shortage of affordable houses. Demand doesn’t appear to be slowing down, especially with mortgage rates now on the rise.
“More than anything, people are going to jump off the fence because of interest rates picking up,” Jason Cassity, a Zillow premier agent in San Diego, told Business Insider. “Everybody thinks they’re going up this year.”
The recent trend marks a reversal from the aftermath of last decade’s housing bubble.
“When the housing market crashed, owners of the least valuable homes were especially hard hit, and lost more home value than homeowners at the upper end of the market,” Zillow senior economist Aaron Terrazas said in the report.
“Since then, though, demand for less expensive, entry-level homes has built steadily, causing prices to grow rapidly. As a result, these homeowners have been able to build wealth at a faster pace than owners of more expensive homes.”