K-shaped economy shows up in housing: Luxury sales rise as starter-home buyers struggle

Recent research reveals a K-shaped economy emerging in the housing market, with luxury home sales surging while starter home purchases falter. Despite an increase in the availability of affordable homes, starter home sales declined 5.4% in May compared to the previous year, according to Zillow. The average price of a starter home, representing the lowest-priced third of properties, rose to $202,000 nationally in May, marking a 2.3% increase from the same period in 2025.

Senior economist Kara Ng attributes this trend to buyers either unwilling or unable to purchase homes due to financial pressures from inflation. Conversely, luxury home sales, defined as properties in the top 5% of values and worth about $1.9 million, grew by 6.2% year-over-year. This disparity mirrors a broader economic divide, with stock market gains benefiting higher-income households while rising everyday costs strain potential starter-home buyers.

The median price of an existing home hit an all-time high of $440,600 in June, a 49.2% increase from June 2020. However, home price growth has slowed, with a June median that is only 1.8% higher than the previous year. Higher mortgage rates, averaging 6.75% as of late March, contribute to affordability issues, with experts noting that even a hypothetical drop to 5% could significantly improve buyer accessibility.

Property taxes and insurance, often included in monthly mortgage payments, have also risen since 2019. The recently passed 21st Century HOME to Housing Act aims to increase housing supply through various measures, but benefits may take time to materialize as a shortage of over 4 million homes persists. Younger individuals face a dilemma, needing to choose between seeking job opportunities in high-cost areas or prioritizing affordability by living in locations with easier access to homeownership.