Rising Values Hindering Affordability
As value and equity increase for homeowners it becomes more difficult for new buyers to enter the market
Good news and bad news often comes in pairs, and such is life in real estate.
Take a couple recent reports from the National Association of Realtors.
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The good: The bulk of the nation’s metropolitan areas showed year-over-year price growth, according to the NAR’s latest quarterly report, comparing Q4 2012 and Q4 2013.
The bad: The NAR’s Housing Affordability Index fell from its 2012 record high of 196.5 to 175.8 in 2013. The index measures the relationship between median price, median family income and average effective mortgage interest rate; a higher index number indicates greater household purchasing power.
So, while homeowners saw the value of their property increase, potential buyers are facing less affordable inventory.
The NAR reported that the median existing single-family home price increased in 73 percent of the measured markets, with 119 out of 164 metro statistical areas showing gains in the fourth quarter from 2012 to 2013. Forty-two market — 26 percent — had double-digit increases. The Q4 results were slightly down from the third quarter, where 88 percent of metros saw price increases, a third of which rose by double digits.
That national median existing single-family home price was $196,900 in Q4 2013, up 10.1 percent from $178,900 in 2012.
“The vast majority of homeowners have seen significant gains in equity over the past two years, which is helping the economy through increased consumer spending,” said NAR Chief Economist Lawrence Yun of the findings. “At the same time, home prices have been rising faster than incomes, while mortgage interest rates are above the record lows of a year ago. This is beginning to hamper housing affordability.”
Increased housing supply will help alleviate some of the pricing pressure, but in 2013 new housing starts totaled just 924,000, far below the historic average of 1.5 million starts that typically are needed.