In contrast, sales of high-end homes were soaring in 2017. Million-dollar-plus sales were up nearly 31% that year. This March, sales in that price class were down 11% year over year, even though there are plenty of those homes for sale. In fact, there is nearly a year's worth of luxury supply available for sale now. Compare that with barely three months' worth of low-end supply.

The inventory of cheaper homes continues to drop for two reasons: builders are not focused on the sector and investors snapped up lower-end homes during the last housing crisis, turning them into rentals. About 5 million homes were added to the rental stock and very few of them were replaced in the for-sale market.

Sales of the lowest-priced homes—those below $100,000—were down 13% in March compared with a year ago, according to the National Association of Realtors. This weakness on the low end started two years ago, as demand began to soar amid very tight supply.

Sales of existing homes were weaker than expected in March. But behind the headline numbers, an even more disconcerting dynamic is playing out. Both the high end and the low end of the market are struggling due to completely different factors.

The issue on the high end, according to Realtors, is the change in state and local tax deductions, or so-called SALT, implemented via the Trump administration's 2017 tax reform bill.

"We just filed our taxes, and I think everyone is nervous about what's happening right now with SALT," said Jessica Lautz, vice president of research at the NAR. "We are just going to have to wait and see how much of an impact that is going to have to the high end of the market."

The impact is already pretty clear in New York City and in much of California, some of the priciest markets in the nation. Los Angeles home sales fell 12% annually in March, according to the California Association of Realtors, even as the supply of listings increased. Sales in the San Francisco Bay Area were down nearly 11%.

"In California, where the tax burden is high, some people are finding they have to move out of state to afford to buy a home. As a result, home sales are down in metros throughout the state," said Redfin's chief economist, Daryl Fairweather.

In Manhattan, the number of home sales in the first quarter of this year fell to the lowest level in a decade and was 16.4% below the two-decade average of all quarters, according to Jonathan Miller, president and CEO of Miller Samuel, a real estate appraisal and consulting firm. This as listing inventory jumped nearly 9%.

Realtors say they hope today's lower mortgage rates will mitigate some of the pain on the high end, as well as help entry-level buyers compete for the few homes that are available for sale on the low end. The one thing both have in common is weaker affordability.

"This is because of 5 years in a row of 5.4% annualized price increases, almost triple the rate of CPI during that time frame," wrote Peter Boockvar, chief investment officer at Bleakley Advisory Group. "Thanks to artificially low rates and the encouragement that gave to the private equity industry to buy homes to rent … and add on high student debt, a large number of young people are renting instead of buying."

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