Sluggish housing market except for a specific sector's robust growth
In a surprising turn of events, starter homes have seen a significant surge in sales and listings in Phoenix and across the United States, according to recent data. This trend is primarily driven by increased inventory availability and affordability dynamics that favor entry-level buyers amid a shifting market landscape.
In Phoenix, starter home listings surged more than 40% in June, with active listings reaching the highest June level since 2017, a 19% year-over-year increase. The median sale price of starter homes also hit an all-time high of $260,000 in June, although the year-over-year price growth was only 3.1%.
Elsewhere in the country, the rest of the housing market has cooled. Sales of homes in higher price tiers have declined as prices inch toward record highs. Sales of luxury properties decreased by 6.7% year over year in June, and pending sales dropped by 5%. Prices of high-tier homes increased by 2.7% to $577,117 in June, while luxury homes saw a 4% increase to $1.29 million.
The growth in starter home sales is attributed to an increase in inventory and interest from first-time buyers priced out of higher tiers. This trend is supported by several key contributing factors.
Firstly, the recovery and growth of inventory have benefited starter homes more heavily. According to Zillow’s July 2025 forecast, total housing inventory has grown about 17% over last year and is expected to approach pre-pandemic levels by year-end.
Secondly, while typical home values are forecasted to decline slightly, luxury and mid-tier homes often experience less relative price softness or can remain elevated due to persistent demand from wealthier buyers. Starter homes, being lower priced, become comparatively more attractive as prices and mortgage rates level off or fall, attracting first-time buyers.
Thirdly, sales and market activity data suggest that the new single-family home sales remain relatively strong, indicating ongoing activity at the more affordable end of the market. By contrast, existing-home sales have slowed overall, with median prices remaining near record highs, especially in the mid and luxury brackets.
Fourthly, market demand and buyer demographics play a crucial role. Starter homes often appeal to first-time buyers who are highly price-sensitive and appear to be leveraging the increased inventory and slight price declines to enter the market. Meanwhile, mid and luxury segments are hindered by high price points and lower inventory flexibility.
Lastly, the softening rent growth for single-family and multifamily units, partly due to increased home inventory, reduces rental cost pressures, enabling some renters to save for down payments and opt into starter home purchases over time.
In summary, the surge in starter home sales relative to other segments results from a combination of recovering inventory levels, modest price corrections favoring affordability, sustained demand from entry-level buyers, and softening rent growth easing the transition from renting to owning. Conversely, mid, high, and luxury home segments face constrained sales due to higher prices, less inventory recovery, and market reluctance amid economic and interest rate uncertainties.
As Redfin Senior Economist Sheharyar Bokhari stated, in a market where affordability is a challenge for many Americans, they are turning toward starter homes. This trend is likely to continue as long as inventory levels remain high and prices remain relatively stable in the lower price tiers.
- Given the growing inventory and affordability dynamics, some Americans are turning to starter homes as a more accessible option in the current market, specifically in Phoenix where starter home listings surged more than 40% in June.
- As the housing market cools for luxury and mid-tier homes, with prices approaching record highs and declining sales, first-time buyers are finding starter homes more attractive due to their relatively lower price points and increasing inventory.
