Home Prices are Rising Again!
The most reliable and respected survey of U.S. home sales and prices is the Standard and Poor’s CoreLogic Case-Shiller Home Price Indices. The firm issues monthly and quarterly reports and studies concerning U.S. home sales and price movements during the year.
Their latest data states that home prices rose in the latest quarterly report by 0.9% month over month and 2.6% annually. Additionally, home prices have now risen for seven consecutive months. The U.S. average home price now stands at an all-time high. In 19 of 20 of the largest cities in the U.S., prices rose an average of 5%. The price rise was uniform throughout the country in the third quarter, with home prices rising in 82% of U.S. metros. Eleven percent of metro areas saw double-digit increases.
This puts one population cohort in a very sweet spot: “Homeowners have accumulated sizable wealth, with a typical homeowner gaining more than $100,000 in overall net worth since 2019 …” according to Lawrence Yun, Chief Economist at the National Association of Realtors (NAR). The conclusion is simple: Demand for homes is outpacing supply which naturally increases home values.
But Yun continues with a caution for homebuyers: “… the persistent lack of available homes on the market will make the dream of homeownership increasingly difficult for younger adults unless housing supply is significantly boosted.”
The rise in home prices pushed buyer affordability to a new low. In addition to home price rises, according to the NAR, high mortgage rates are another reason for this lack of affordability. These high rates dissuade homeowners from selling their home – they realize that when they move, they too will be hit with the high rates. Many homeowners ask themselves, why sell a home where I’m holding a 3 or 4% mortgage rate for the privilege of paying an 8% rate? This last factor keeps many homes off the market, further driving up prices for homes which are for sale.
In the metric used by NAR, any value below 100 means the typical family cannot afford to buy a median-priced home. The NARs affordability index stood at 91.7 in August down from 93.9 in July. A year ago, the index was at 110.5. The current rate is the lowest on record, going back to 1989. Of course, when mortgage rates are high, homebuyers must pay a greater percentage of their income on meeting the monthly bill. This will impact lifestyle in multiple ways. On a national level, the average monthly mortgage payment rose 26.2%, or $464, in the last 12 months to $2,234. For a typical starter home valued at $345,900 with a 10% down payment loan, the monthly mortgage payment rose to $2,149, up 6.9% from the previous quarter ($2,011).
However, it must be mentioned, none of these scenarios is engraved in stone. The residential real estate market is highly complex. Many other factors can come into play which can affect prices in a substantive way. A government shutdown, falling or rising inflation rates, the cost of heating, etc.
It’s always important to keep you eyes on the ball, as new data and events are bound to occur.