The U.S. housing market is basically two different markets now.
Starter homes and luxury homes are moving in opposite directions.
A starter home, in Zillow's system, is one priced in the 5th through 35th percentiles of regional home values.
A luxury home sits in the top 5% of values in its area.
Because those categories are tied to regional values, the dollar amount attached to each tier varies by metro. A home that counts as a starter in one city might be considered mid-range in another, and the top 5% threshold can look very different across the country.
Both have gained value. The real difference shows up when it's time to sell.
Starter homes are piling up.
Luxury homes are heading the other way.
Price cuts followed the same pattern. A price cut appeared on 25% of starter-home listings in June, a sign that sellers at the low end are ready to bend.
At the luxury level, 20.6% of listings had price cuts. When fewer sellers drop the price, it usually means demand is still strong.
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The reason for the split comes down to money. High inflation, weak consumer sentiment and a slowing job market are making regular buyers hesitate before making huge purchases, and a home is the biggest purchase most people ever make.
At the same time, stock-market gains have padded the bank accounts of wealthy households, making them more willing to spend on high-end real estate. That's why the top of the market keeps humming while the bottom loses a step.
No city shows the split better than San Francisco. Luxury home sales there jumped 21.6% in May from a year earlier.
Starter-home sales in the same city slipped 1.2% during that month.
The price-cut numbers tell the same story. In June, 22.2% of starter-home listings in San Francisco had a price cut.
At the luxury end, 9.4% of listings had price cuts. The people selling San Francisco's most expensive homes don't have to sweat much.
The national numbers hide a lot of local variety. Some cities are seeing starter-home demand stay strong, while others are racing ahead on the luxury side.
The biggest year-over-year gains in starter-home sales as of May:
Luxury sales have their own winners. These metro areas posted the largest year-over-year gains in luxury-home sales as of May:
Kara Ng, senior economist at Zillow, sees the soft starter market as a rare opening. "The best time to buy a home is when nobody else wants to," she said.
"Starter home buyers today have more options, more negotiating power, and sellers who are more willing to deal," Ng said.
The catch: the same money problems that made saving for a down payment hard are still around. "The challenge is that the same financial pressures making it harder to save for a down payment are also making it harder to take advantage of that opportunity," Ng said.
For a first-time buyer, the market is friendlier than it was a year ago. There are more homes to look at, more price cuts to find, and sellers who are willing to talk.
The hard part hasn't changed. The down payment still has to come from somewhere.
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