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This spring, the housing market is split between haves and have-nots.
Demand for high-end homes has been booming, with sales at the $1 million-plus price point growing faster than any other part of the market. At the same time, sales at the lower end of the market — sub-$250,000 homes typically targeted by first-time homebuyers — have dropped in the past year.
The divergence is another example of the K-shaped economy, in which high-income households are thriving and spending while lower- and middle-income households are pulling back as the cost of living rises. In the long run, such shifts can exacerbate the wealth gap as longtime homeowners reap home equity gains while first-time buyers struggle to enter the market at all.
“That’s really what you end up seeing in a lot of sectors of the economy — higher-income households are able to participate,” said Selma Hepp, chief economist at Cotality, a property data firm.
Read more: What is a ‘K-shaped’ economy, and what’s causing the divide?
High earners have multiple advantages that help them ascend to the top of the housing market. They’re more insulated from bruising inflation and more likely to have significant investments. Lately, they’ve been able to take advantage of fresh highs in equity markets.
“We are seeing a little more movement on the upper end,” said Lawrence Yun, chief economist at the National Association of Realtors. “This could be a reflection of the fact that the stock market is essentially at record-high conditions.”
The divide in sales trends
In April, home sales at the over-$1 million price point were up 9.3% from a year ago, according to National Association of Realtors data. Sales of homes in the $250,000 to $1 million range were slower, and sales at the $100,000 to $249,999 level dropped 1.3%.
Many homeowners have found themselves at the top of the K by timing their purchases well. While the rapid rise in home prices since the pandemic is a challenge for first-time buyers, many current owners are sitting on sizable home equity positions, which can help them fund future purchases.
“Move-up buyers have a distinct advantage because they’ve been riding this wave,” said Marcus Auerbach, a real estate agent in the Milwaukee suburb of Whitefish Bay, Wis. He’s seen buyers who put $35,000 down on a starter home five years ago walk away with $200,000 to $250,000 in equity by selling today.
“For them, it has played out really well,” he added.
As a result, sales of the area’s higher-end homes — those at about $800,000 and above — have been strong this spring, and all-cash offers seem to be on the rise. Moderate- and entry-level-priced homes have been taking longer to sell.
