Sales of starter homes fell 5.4% in May compared with a year earlier, despite there being 4.5% more available, according to a report from Zillow. The typical value of a starter home — defined as the lowest-priced third of properties — was $202,000 nationally in May, up 2.3% from the same month in 2025.
Sales of luxury homes — those in the top 5% of values and worth about $1.9 million nationally — rose 6.2% year over year in May, the report said. The median price of an existing home reached an all-time high of $440,600 in June, according to the National Association of Realtors. That figure is 49.2% higher than in June 2020 and 1.8% higher than a year earlier.
The pattern mirrors a broader economic divide, with stock market gains supporting demand at the high end while rising everyday costs weigh on potential starter-home buyers, Kara Ng, a senior economist for Zillow and author of the report, wrote. Even with subdued rent growth, inflation is eating into other parts of household budgets, making it harder to save for a down payment, Ng said.
Starter-home buyers have more choices, more price cuts and less competition, Ng said. But the unfortunate reason for that advantage is that starter-home buyers are either unwilling or unable to purchase a home, she said.
Higher mortgage rates contribute to ongoing affordability problems for potential homebuyers, experts said. The average interest rate on a 30-year fixed-rate mortgage was 6.75% as of Wednesday, according to Mortgage News Daily. Rates had dipped below 6% in late February, but the onset of the Iran War and the accompanying specter of inflation pushed them higher.
A 6.75% rate on a $202,000 mortgage would translate into a monthly payment of $1,310 for principal and interest, according to Bankrate's mortgage calculator. At 5%, that amount would be $1,084, and at 3%, it would be $852.
Mortgage rates play less of a role for buyers in the luxury market, because they can sell stock or liquidate assets in order to buy a home without having to even get a mortgage in the first place, or if they get a mortgage, they might not be deterred by the high interest rate, said Daryl Fairweather, chief economist for Redfin.
Hypothetically, if mortgage rates were to drop to, say, 5%, that would make buying a home much more affordable, Fairweather said. You would see instantaneously an increase in sales and more people buying and then more people selling. But I think it's pretty far-fetched at this point to rely on that happening, she said. Interest rates are looking like they will be higher for longer.
Property taxes and insurance, which are often included in a homebuyer's monthly mortgage payment, can also impact affordability. Those costs also have risen significantly since 2019, according to Cotality, a property data and analytics firm.
The bipartisan 21st Century ROAD to Housing Act, which became law in July, is intended to increase the housing supply. It combines dozens of measures aimed at encouraging home construction, expanding access to financing and restricting purchases by large institutional investors. However, it could be some time before homebuyers see benefits. As of 2025, there was a shortage of more than 4 million homes, according to Realtor.com.