Luxury price growth beat starter homes in 70% of top US markets in September, First American data show
Price growth for higher-end homes outpaced starter-home growth in roughly 70% of the top markets tracked by First American Data & Analytics in September.
The split centers on the segment that drives the financed purchase market. The data cover a month that ended before mortgage rates reached a three-year high in October.
National annual price growth slowed to 1.2%, the weakest September reading since 2011, when annual prices were declining. Prices were unchanged from August, and the July-to-August gain was unrevised at 0.2%.
“That gap reflects how higher mortgage rates affect buyers differently,” said Mark Fleming, chief economist at First American. “Buyers at the lower end of the market tend to have less room to absorb higher monthly payments, while luxury buyers are generally less constrained by financing costs.”
Entry-level borrowers carry the rate burden
First-time buyers accounted for 63.3% of agency purchase loans in May, according to First American.
Fleming said the long-term shortage of affordable homes continues to support starter-home prices, but “today’s affordability pressures are limiting how quickly those prices can rise.”
MBA’s seasonally adjusted Purchase Index fell 7% in the week ending October 16, and the FHA share of applications slipped to 16.3%.
“Purchase applications fell 18% behind last year’s pace, as higher rates are pricing buyers out of the market,” said MBA deputy chief economist Joel Kan.
September prices predate October’s rate peak
Existing-home sales rose 1.5% in September to an annual pace of 3.99 million but stayed 2.2% below a year earlier, according to NAR. The 30-year fixed rate averaged 6.86%. “Further increases in mortgage rates in recent weeks mean fewer buyers can qualify to purchase a home,” said NAR chief economist Lawrence Yun.
Freddie Mac’s 30-year fixed rate reached 7.40% in mid-October, its highest in three years, before easing to 7.32% for the week ending Oct. 22.
First American estimates that the move from about 6.5% in July to just above 7% in September cut house-buying power by approximately $19,000 if income stays constant.
“The recent increase in mortgage rates may further constrain affordability and strengthen the rate lock-in effect, limiting both the demand and the supply of homes for sale,” Fleming said. “Homeowners’ ability to remain in their homes and become neither a seller nor a subsequent buyer, rather than sell into a higher-rate market, continues to put a floor under prices.”
CME FedWatch pricing showed a 90.6% probability that the Federal Reserve holds rates at its October 27–28 meeting, after a September hike, and a 79.7% chance of a December increase.
Midwest metros gain while Texas declines
Grand Rapids, Michigan, led starter-tier growth at 5.5%, with mid-tier and luxury gains of 3.5% and 3.4%. Milwaukee’s starter, mid and luxury tiers rose 5.2%, 3.8% and 5.1%, respectively, while Cleveland posted 5.1%, 4.0% and 5.3%.
Philadelphia recorded tier gains of 5.0%, 3.4% and 3.3%. Chicago’s starter and mid-tiers each rose 4.7%, and its luxury tier climbed 6.3%.
Chicago also led overall growth at 5.1%, while New York rose 4.9% and Hartford, Connecticut, gained 4.7%. Cleveland and Milwaukee each posted 4.6%.
Four of the five large metros with annual declines are in Texas. Dallas fell 6.3%, Austin 4.3%, San Antonio 2.7% and Houston 2.0%, while Seattle declined 2.6%.
In an August 31 analysis, Fleming said a foreclosure wave requires both job loss and insufficient equity. He found prices in all 50 of the largest markets above February 2020 levels in June, by about 52% on average.
First American Data & Analytics, a division of First American Financial Corporation of Santa Ana, California, released the HPI on October 26. The index tracks prices less than four weeks behind real time. Its tiers split sales into thirds by local price across the nation, all 50 states and the 50 largest CBSAs.
