Price of starter homes fell in San Francisco, Austin, and Phoenix, against national trend – reasons explained

Price of starter homes fell in San Francisco, Austin, and Phoenix, against national trend – reasons explained

The Decline of Starter Home Prices in San Francisco, Austin, and Phoenix

In an unexpected turn of events, starter home prices in San Francisco, Austin, and Phoenix have declined this year, bucking the national trend. According to a report from real estate brokerage Redfin, these three cities are the only metros in the US where the prices of starter homes have decreased year over year. This decline is attributed to a slowing homebuyer migration and the waning popularity of remote work.

A senior analyst with Redfin, Sheharyar Bokhari, explains that these markets are experiencing a backlash after several years of robust buyer demand and price growth. As interest rates rose significantly, the previously escalated prices became unsustainable, leading to the current decline in these three metros.

The median sale price of a starter home in San Francisco has decreased by 13.3% to $910,000, while in Austin it has dropped by 12.2% to $347,300, and in Phoenix by 9.7% to $325,000. Although these prices may still seem high to many, they represent a significant decline compared to previous years.

Despite the decline, the incomes required to afford these homes are still considerable. For a starter home in San Francisco, an income of $241,200 is needed, $92,000 in Austin, and $86,100 in Phoenix.

San Francisco, once one of the fastest-growing housing markets in the nation, is now experiencing a cooling trend. The median listing price has fallen 8.8% year over year to $1.4 million. Homes being listed for sale are spending an average of 26 days on the market, compared to 18 days in 2022. The decline in demand is mainly attributed to high mortgage rates and negative headlines that have affected both tourism and worker migration.

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Austin has a similar story to San Francisco. The city, known for its tech hub, witnessed strong demand throughout the pandemic as numerous tech giants established headquarters in the area. However, as people return to offices and work from home becomes less prevalent, demand has decreased. This decrease in demand, combined with local incomes unable to support higher home prices, has resulted in sellers reducing their prices to attract buyers.

Phoenix, despite being vulnerable to droughts, remains an outlier among the three metros. The city still experiences high demand from migrating buyers and was the top market for relocation in June. However, similar to Austin and San Francisco, Phoenix’s home price declines can be attributed to the ebb and flow of supply and demand. iBuyers, who invested heavily in the Phoenix market, faced losses as interest rates increased. Consequently, these investors are reducing their presence in the market, contributing to the decrease in prices.

While starter home prices have declined in these three metros, the national trend tells a different story. Redfin’s report reveals that the typical starter home sold for a record $243,000 in June, up 2.1% from the previous year and over 45% from 2019. This increase in prices means that first-time buyers now require an annual income of about $64,500 to comfortably afford a starter home, exceeding the income needed in 2022 by $7,200.

“As prices for the most affordable homes continue to climb and rates remain elevated, it’s becoming more true that you have to be wealthy to buy a home — especially if it’s your first one,” says Bokhari.

Despite the overall upward trend in starter home prices, the decline in San Francisco, Austin, and Phoenix offers a glimmer of hope for potential homebuyers in these metros. However, the high income requirements remain a significant barrier for many aspiring homeowners.

• Incomes
• Redfin
• Starter Homes