Home prices haven’t leveled off yet, despite reports of more inventory. According to a home price appreciation report from Redfin, the second quarter brought good news for homeowners in all price points. But, luxury home prices saw the biggest surge with a 25.8% increase in home prices year over year, followed by affordable homes at 18.7%.
“Home prices and sales plummeted at the beginning of the pandemic, but have now more than recovered — especially in the luxury and most affordable price tiers — due to low mortgage rates and strong homebuyer demand during the pandemic,” according to Daryl Fairweather, chief economist for Redfin.
Luxury homes see biggest price surge
The price of U.S. luxury homes (homes with a median price of $1 million) jumped 25.8% year over year in the second quarter. Luxury median sale prices climbed the fastest in Austin, TX (33.3% year over year), Phoenix (33%), West Palm Beach, FL (31.3%), Fort Lauderdale, FL (30.9%) and Providence, RI (27.1%). They grew the slowest in New York (0.03%), San Francisco (3.1%), Nassau County, NY (3.5%), Miami (5.7%) and St. Louis (5.8%).
What’s swaying Americans to buy these luxury homes and how are they doing it?
Well-off Americans have reaped the gains of a strong stock market and stashed away plenty of savings.
An example, an investment researcher in New Jersey curbed spending by cutting down on travel, thus saving $15,000 (a year), according to The Atlantic.
Normally, luxury homes take longer to sell than homes in lower tiers. The gap has narrowed during the pandemic — likely due to increased competition for high-end homes that offer space and privacy.
Luxury homes that were for sale in the second quarter spent 30 days on the market. That’s 34 fewer days than the same period in 2020.
Affordable home prices jump
How long are affordable homes (homes with a median price of $198,200) available for buyers?
Most affordable homes spent 25 days on the market, 17 fewer days than last year. Homes in the remaining three price tiers spent about two weeks on the market and also sold faster than they did in 2020.
While luxury prices surged the most, affordable home price appreciation jumped the second highest at an 18.7% increase year over year, when compared to expensive (median price $455,000), mid-priced (median price $290,000) and most affordable ($108.000).
“Surging prices can be especially problematic for first-time and lower-income homebuyers, but the good news is that the supply of the country’s most affordable homes is growing. That means there could be more homes to choose from and less competition for buyers in that segment of the market.”
The median sale price of the country’s most affordable homes rose 18.7%. When you consider that overall home appreciation in all price ranges was 4% in 2019, you can see that today’s market is truly hot. Median sale prices of the most affordable homes gained the most in Detroit (345.5%), Milwaukee (68.7%), Pittsburgh (62.2%), Indianapolis (55.2%) and St. Louis (53.1%). San Francisco was the only metro that saw a decline, down 2.4%.
The third quarter will be the test to see if home price increases will level off. Zillow’s forecast predicts annual home value growth will rise as high as 13.5% by mid-2021 (an average of all price points), and for home values to end 2021 up 10.5% from their current levels.