A Tale of Two Markets
Over the past six months, I’ve noticed a change in how different parts of our housing market are behaving. It has become more pronounced over the last two or three months: the strength of the luxury market compared with the entry-level market.
Typically, with smaller condos and starter homes, I expect more showings, more offers and more activity. We live in an expensive area, and the pool of buyers who can afford an entry-level home is generally larger than the pool shopping for a multimillion-dollar property.
But recently, I’ve seen that pattern flip.
I had a couple of multimillion-dollar properties listed in Pismo Beach at the same time as a very affordable condo in North County. Normally, I would expect more activity on the condo than on both luxury listings combined. Instead, the luxury properties generated far more showings and offers.
A few listings don’t tell us everything about the market. Pricing, location, condition and financing requirements all play a role. But I think a couple of things help explain what I’m seeing.
Interest rates affect buyers differently
Luxury buyers who can purchase with cash or make a substantial down payment are less dependent on mortgage financing. Higher mortgage rates still matter, but they don’t necessarily determine whether those buyers can move forward.
For someone buying a first home, the monthly payment can be the deciding factor. A change in rates can put a home that once seemed affordable out of reach.
That means two buyers can look at the same interest-rate environment and experience it very differently. One may be deciding how much cash to put into a purchase. The other may be trying to make the monthly payment work at all.
Two different experiences of the economy
For simplicity, think about two groups: people relying primarily on their paychecks, with relatively little invested, and people who also own substantial assets, such as stocks, businesses and real estate.
For households whose income hasn’t kept up with living costs, higher prices leave less money to save for a down payment or put toward a mortgage. Even when inflation slows, the higher prices don’t automatically disappear. The pressure adds up.
Meanwhile, investments can provide another source of financial growth. As a historical example, the S&P 500 rose about 24% in 2023 and another 23% in 2024, before dividends. Those gains compounded to roughly 53% over the two years. Source: S&P Dow Jones Indices, December 2024 report, page 1.
Not every investment has performed well, and those historical returns are not a forecast. But a substantial portfolio can give a buyer more flexibility to purchase with cash, make a larger down payment or feel comfortable making a move.
What this means if you’re selling
When buyers are experiencing the economy in different ways, it makes sense that the homes they are shopping for could behave differently, too.
For sellers, the question is who is likely to buy your home and what they can afford. I would look at similar homes nearby: how much interest they’re getting, how quickly they’re selling, and how their sale prices compare with their original asking prices. I would also look at the homes a buyer could choose instead of yours.
A strong luxury listing doesn’t tell us that every expensive home will sell quickly. And a slower condo doesn’t mean every entry-level seller needs to reduce the price. The details of the property and its competition still matter.
What this means if you’re buying
For buyers, the opportunities can look very different from one price range to another.
If comparable homes are sitting longer and selling below their asking prices, you may have more room to negotiate. If the homes you want are getting multiple offers and selling quickly, that calls for a different approach. In either case, start with a payment you’re comfortable with and the actual competition for the kind of home you want.
You can explore the Central Coast community pages to get a sense of the different areas. For the decision itself, I’d go a level deeper and look at comparable homes in your price range.
If you’re curious about how this applies to your home or the type of property you’re hoping to buy, I’d be happy to put together a closer look. Email me and let me know what you have in mind.
Ian Chandler | Home and Ranch Sotheby’s International Realty
805-769-4144 | slohomesales.com | DRE# 01955407
This article reflects my recent listing experience, not a countywide study of luxury and entry-level sales. The investment example covers 2023–2024 and is included to explain a concept, not to describe current returns or recommend an investment.