New Zillow and Case-Shiller data reveal a housing market fracturing along wealth lines, with record gains at the top
The US residential real estate market is fracturing along wealth lines with luxury home sales up 6.2 percent year over year in May 2026, even as starter home sales fell 5.4 percent over the same period, according to new data published by Zillow.
The divergence, playing out across dozens of metros, has significant implications for financial advisors helping clients assess real estate as an asset class or evaluate portfolio-level exposure to housing.
The data lands alongside fresh price index figures from the S&P Cotality Case-Shiller Home Price Index.
The national index posted a 1.1 percent annual gain in May, its first reading above 1 percent in 2026. The 10-city composite rose 2.4 percent year over year, and the 20-city composite advanced 1.6 percent. Month over month, prices nationally grew 0.6 percent – positive, but below the historical May average of 1.0 percent recorded during the pre-pandemic period of 2015 to 2019, according to Cotality's analysis.
"The May data reveals a market with potential for a seasonal rebound," said Thom Malone, principal economist at Cotality. "While May's month-over-month increase of 0.6% is below the pre-pandemic norm, the uptick in the annual appreciation rate suggests that while affordability issues are keeping demand weak, low inventory levels are creating a floor for prices on the supply side."
Wealth effect drives luxury demand
The explanation for the luxury surge is straightforward: stock market gains over the past year have materially improved the purchasing power of high-income households, and that wealth effect is flowing directly into premium real estate.
Luxury home inventory fell 5.2 percent nationally in June 2026, according to Zillow, even as luxury sales accelerated. Price cut rates on luxury listings stood at 20.6 percent in June, elevated by historic standards, but well below the 25.0 percent rate recorded for starter-tier homes.
San Francisco offers the most dramatic illustration of the divide. Luxury home sales in the Bay Area surged 21.6 percent year over year in May 2026, per Zillow data, while luxury inventory fell sharply and fewer sellers were cutting prices – just 9.4 percent of luxury listings, compared with 22.2 percent of starter home listings in the same metro. Starter home sales, meanwhile, slipped 1.2 percent year over year. The city's upper market is functioning almost independently of its entry-level segment.
Other major markets tell a similar story. Chicago recorded a 24.9 percent increase in luxury home sales year over year in May, Dallas saw luxury sales rise 18.1 percent, and Washington, D.C., posted a 23.6 percent jump. In each of these cities, luxury inventory was falling while starter home supply was either flat or rising.
Affordability headwinds freeze out first-time buyers
At the other end of the price spectrum, conditions are moving in the opposite direction – but buyers are not taking advantage. Starter home inventory rose 4.5 percent nationally in June 2026, price cuts were more common, and bidding wars less frequent, according to Zillow. Despite those friendlier conditions, sales fell.
Zillow defines starter homes for this analysis as properties in the 5th to 35th percentile of home values in a given region. The typical national starter home was worth approximately $202,000 as of June 2026, up 2.3 percent year over year. Luxury homes – those in the top 5 percent of values in a given region – had a typical national value of approximately $1.9 million, up 3.1 percent.
"The best time to buy a home is when nobody else wants to," said Kara Ng, senior economist at Zillow. "Starter home buyers today have more options, more negotiating power, and sellers who are more willing to deal. The challenge is that the same financial pressures making it harder to save for a down payment are also making it harder to take advantage of that opportunity."
Slowing hiring, persistent inflation, and consumer sentiment that has fallen to historic lows are all weighing on lower-income households.
What stabilization looks like at the national level
At the headline level, the housing market is not collapsing, but it is not recovering uniformly either.
Thirteen of the 20 major metros tracked in the S&P Cotality Case-Shiller index posted accelerating annual price growth in May compared to April, according to Cotality's July 2026 analysis. Chicago led with a 6.9 percent year-over-year gain. Las Vegas was the weakest performer, recording a 1.9 percent annual decline.
Monthly price changes revealed further regional splits. Boston led with a 1.8 percent month-over-month gain in May, well above its historical trend. San Diego recorded a 1.0 percent monthly drop. Malone noted that low housing supply is providing a floor for prices nationally even as demand remains subdued.
For wealth managers advising clients with real estate holdings or those considering market entry, the data points to a stabilizing, but not recovering, national market, with meaningful opportunities concentrated in the luxury tier and selective metro areas.
