Higher-end homes are posting stronger price growth than starter homes across much of the country, revealing a split in the purchase market that the national slowdown alone does not capture.
Luxury-tier home price appreciation outpaced starter-tier appreciation in roughly 70% of the major markets First American Data & Analytics tracks, according to its September Home Price Index report. Chief Economist Mark Fleming attributed the difference to buyers’ uneven ability to absorb higher financing costs.
“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,” Fleming said.
For originators, the report points to different pressures within the same purchase market: borrowers shopping at the lower end face tighter payment constraints, yet limited affordable inventory continues to support prices. Higher-end prices, meanwhile, are appreciating faster in most tracked markets.
Nationally, home prices increased 1.2% year over year in September and were unchanged from August on a non-seasonally adjusted basis. It was the weakest September annual growth reading since 2011, when prices were declining. Annual appreciation nevertheless remained positive across the starter, middle, and luxury tiers.
A Price-Tier Divide
First American defines starter homes as the bottom third of a local market’s sales price distribution, the middle tier as the middle third, and luxury homes as the top third. Those categories reflect local prices rather than fixed national dollar thresholds.
That makes the luxury designation broader than multimillion-dollar properties and distinct from the jumbo mortgage market. The report measures home price changes, rather than mortgage production or transaction volume.
Fleming said the combination of financing pressure and scarce affordable housing helps explain the starter tier’s position.
“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,” he said.
The result is a constrained entry-level market: buyers’ budgets limit how much they can bid, while the shortage of affordable properties keeps pressure on prices upward.
Where Starter Homes Still Cost More
Several Midwest and Northeast markets illustrate how little the national slowdown says about an individual borrower’s search.
Among the 50 largest metropolitan areas, Grand Rapids, Mich., led starter-tier appreciation at 5.5% year over year, followed by Milwaukee at 5.2%, Cleveland at 5.1%, Philadelphia at 5%, and Chicago at 4.7%.
Those markets also show why the broader luxury trend needs a local reading.
In Chicago, luxury-tier prices rose 6.3%, compared with 4.7% for starter homes. Cleveland’s luxury tier gained 5.3%, slightly ahead of its 5.1% starter-tier increase.
Grand Rapids and Philadelphia moved in the other direction. Their starter tiers appreciated more quickly than their luxury tiers, which rose 3.4% and 3.3%, respectively. Milwaukee’s starter-tier increase also narrowly exceeded its 5.1% luxury gain.
For LOs serving those markets, a national appreciation figure of 1.2% offers limited guidance for borrowers trying to keep pace with entry-level prices rising roughly four times that quickly. A borrower postponing a purchase may still face a higher target price even while broader housing headlines describe cooling conditions.
Higher Rates Can Restrict Both Sides Of A Sale
Fleming also cautioned that higher mortgage rates can restrain both buyers and sellers, helping explain why weaker purchasing power does not automatically produce falling prices.
“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,” he said.
Homeowners who stay put avoid both selling their current property and financing the next one at a higher rate. That decision removes a potential buyer, but it also keeps a home off the market.
The overall metro results showed considerable geographic variation. Chicago recorded the strongest annual price growth among the largest markets at 5.1%, followed by New York at 4.9%, Hartford, Conn., at 4.7%, and Cleveland and Milwaukee at 4.6%.
Dallas recorded a 6.3% annual decline, while prices fell 4.3% in Austin, Texas; 2.7% in San Antonio; 2.6% in Seattle; and 2% in Houston.
For originators, the practical value is in pairing the borrower’s financing capacity with price trends in the segment they can actually afford. In markets where starter prices continue rising faster than the local average, slower national appreciation provides little relief to a payment-constrained purchase file.
