The starter home is making a comeback as the housing market thaws for first-time buyers

• Starter home sales in July reached their highest since October 2022, a report from Redfin shows.

The housing market has remained in low gear this year, but there's one area of the market that's mounting a comeback.

Pending sales of starter homes — houses priced in roughly the bottom third of home values — rose 10.2% year-over-year in July to the highest level since October 2022, according to a report from Redfin.

The uptick in starter home sales comes as first-time home buyers take advantage of lower mortgage rates and an influx of homes coming to market.

"The overall market remains sluggish, but we are beginning to see first-time homebuyers come off the sidelines, buoyed by falling mortgage rates and an increased number of homes hitting the market," said Redfin economist Sheharyar Bokhari.

Mortgage rates have fallen in recent weeks, with the 30-year mortgage rate tumbling to its lowest in over a year earlier this month.

That's been enough to entice many first-time buyers, who are less likely to have large down payments ready for a purchase, and thus see greater impacts on their monthly payments with changes to mortgage rates.

Starter home prices— while still high—are rising slower than middle- and upper-price homes. The average starter home sold for a record high of $250,000 in July, up 4.2% compared to last year. Home prices in the middle- and upper-price tiers, however, increased 4.6% and 5%, respectively.

"Not only do you have young families and investors looking at starter homes, you also have buyers who have been forced to consider less-expensive options due to near-record home prices," Bokhari said.

But even with increased demand for starter homes, prices haven't skyrocketed because inventory is steadily rising at the same time, Bokhari said.

The number of starter homes on the market is up 18.9% compared to last year, the largest inventory of such homes since October 2022.

That growth outpaces the broader US housing supply, which saw a record 14% uptick in July.