Photo: Robert Clark

Starter homes are in high demand but increasingly low supply in the US, and many owners of these sought after homes are seeing an unexpected benefit of homeownership.

Generally, owners of starter homes are building equity at a quicker pace than any other subsection of homeowners, according to a newly released study by the listing site Zillow.

Over the last four years, owners of starter home have gained 44 percent in equity, while owners of the most valuable homes have gained 27 percent. And, over the past year, starter homes have gained 8.5 percent in value nationwide. By comparison, the most expensive homes have gained 3.6 percent in value over the same period.

“This underscores the power of homeownership to build wealth, particularly among the middle class,” Zillow Senior Economist Aaron Terrazas tells BuzzBuzzNews.

The reason behind the rapid pace of wealth building and home price appreciation being seen in the entry-level market harkens back to the housing market crash and Great Recession. Owners of starter homes lost more home value compared to homeowners at the higher-end of the housing market during the crisis.

“Demand for less expensive, entry-level homes has built steadily, causing prices to grow rapidly. As a result, these homeowners have been able to build wealth at a faster pace than owners of more expensive homes,” writes  Terrazas in the digital release.

Among the largest metros, starter homes in Tampa, FL saw the greatest appreciation over the last year, with starter homes gaining 20 percent in value.

In the New York City metro area, starter homes have gained 8.5 percent in value over the last year, while high-end homes have gained 5.7 percent over the same period. However, over the last five years, high-end homes in the New York City metro area have appreciated at a higher rate than starter homes — 29.2 percent compared to 24.1 percent, respectively.

Of the large markets analyzed by Zillow, Seattle, WA, San Jose, CA, and San Francisco’s Bay Area were the only markets where high-end homes were appreciating faster than starter homes. Unsurprisingly, these are three of the country’s hottest housing markets.

And, while solid home price appreciation is obviously beneficial to homeowners of those entry-level homes, there is a downside — it is making it increasingly more difficult for homebuyers to enter the market.

Rapidly shrinking inventory in the entry-level submarket is creating a frenzy of competition and bidding wars among homebuyers. Currently, there are 18 percent fewer starter homes for sale that last year nationwide.

Click here to read the entire release.

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