Metro Home Prices Climb to New All-Time High; Rise 5.3 Percent in Second Quarter

(August 8, 2018) — Amidst staggeringly low inventory levels in much of the country during the second quarter, existing-homes sales cooled and home prices maintained their robust level of appreciation, according to the latest quarterly report by the National Association of Realtors®. Last quarter, the San Francisco metro area joined the San Jose metro area for having a median sales price above $1 million.

The national median existing single-family home price in the second quarter was $269,000, which is up 5.3 percent from the second quarter of 2017 ($255,400) and surpasses last year’s second quarter as the new peak. The median sales price during this year’s first quarter increased 5.7 percent from the first quarter of 2017.

Single-family home prices last quarter increased in 90 percent of measured markets, with 161 out of 178 metropolitan statistical areas1 (MSAs) showing sales price gains in the second quarter compared to a year ago. Twenty-four metro areas (13 percent) experienced double-digit increases, down from 30 percent in this year’s first quarter.

Lawrence Yun, NAR chief economist, says this year’s spring buying season did not meet expectations, despite very strong demand. “The ongoing supply crunch affecting much of the country worsened for most of the second quarter, as the growing number of interested buyers in many markets overwhelmed what was already a meager level of available listings,” he said. “With not enough homes for sale, multiple bids caused prices to rise briskly and further out of the reach of some prospective buyers.”

Total existing-home sales2, including single family and condos, decreased 1.7 percent to a seasonally adjusted annual rate of 5.41 million in the second quarter from 5.51 million in the first quarter, and are 2.4 percent lower than the 5.55 million pace during the second quarter of 2017.

“Solid economic growth, a healthy labor market and the large millennial population should be driving home sales much higher,” said Yun. “As long as economic conditions maintain current levels, there’s still a chance for sales to break out this year. However, with mortgage rates trending higher, it will only happen if supply levels improve enough to cool the speedy price growth in a majority of the country.”

At the end of the second quarter, there were 1.95 million existing homes available for sale3, which was 0.5 percent above the 1.94 million homes for sale at the end of the second quarter in 2017. The average supply during the second quarter was 4.1 months – down from 4.2 months in the second quarter of last year.

The national family median income rose to $75,1064 in the second quarter, but overall affordability decreased from a year ago because of higher mortgage rates and home prices. To purchase a single-family home at the national median price, a buyer making a 5 percent down payment would need an income of $64,239, a 10 percent down payment would require an income of $60,858, and $54,096 would be needed for a 20 percent down payment.

“The unaffordable conditions in many of the largest metro areas – especially in the West – continues to be a growing concern for many middle-class households aspiring to buy a home,” said Yun. “Homebuilders, facing higher costs and labor shortages, are simply not producing enough affordable homes to satisfy demand. Local governments need to acknowledge this glaring issue and ease some of the zoning laws, permitting processes and regulations that are slowing construction.”

The five most expensive housing markets in the second quarter were the San Jose, California metro area, where the median existing single-family price was $1,405,000; San Francisco-Oakland-Hayward, California, $1,070,000; Anaheim-Santa Ana-Irvine, California, $830,000; urban Honolulu, $795,200; and San Diego-Carlsbad, $645,000.

The five lowest-cost metro areas in the second quarter were Youngstown-Warren-Boardman, Ohio, $94,400; Cumberland, Maryland, $94,900; Decatur, Illinois, $96,900; Elmira, New York, $106,300; and Erie, Pennsylvania, at $121,700.

Metro area condominium and cooperative prices – covering changes in 61 metro areas – showed the national median existing-condo price was $248,200 in the second quarter, up 3.6 percent from the second quarter of 2017 ($239,600). Ninety percent of metro areas showed gains in median condo price from a year ago.

Regional Breakdown

Total existing-home sales in the Northeast were at an annual rate of 683,000 (unchanged from the first quarter of 2018) and down 8.9 percent from a year ago. The median existing single-family home price in the Northeast was $288,900 in the second quarter, up 2.3 percent from a year ago.

In the Midwest, existing-home sales rose 1.6 percent in the second quarter but are 2.8 percent below a year ago. The median existing single-family home price in the Midwest grew 3.5 percent to $210,600 in the second quarter from the same quarter a year ago.

Existing-home sales in the South declined 2.7 percent in the second quarter but are 0.6 percent higher than the second quarter of 2017. The median existing single-family home price in the South was $238,500 in the second quarter, 4.0 percent above a year earlier.

In the West, existing-home sales in the second quarter decreased 4.1 percent and are 3.6 percent below a year ago. The median existing single-family home price in the West increased 8.3 percent to $403,300 in the second quarter from the second quarter of 2017.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.3 million members involved in all aspects of the residential and commercial real estate industries.

SOURCE: Realtor dot com

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First-Time Buyers Get Mortgage Rate Reprieve for Now

Mortgage rates continue to decline for the month of June, providing first-time buyers with a reprieve from rising rates for home loans at the same time that property values are increasing.

On Thursday, Freddie Mac reported that, for the week ending July 5, the average interest rate on a 30-year fixed-rate mortgage was 4.52% compared with 4.55% in the week earlier. The mortgage rate on a 15-year fixed-rate mortgage was 3.99%, down from 4.04%, while the five-year adjustable-rate mortgage stands at 3.74%, down from 3.87%. In releasing the rates for the week, Freddie Mac chief economist Sam Khater said that there was good news for home buyers: mortgage rates “may have a little more room to decline over the very short term.” Translation: first-time buyers who are sensitive to rising costs to borrow may want to jump in now before rates turn higher. After all, the conventional wisdom is that mortgage rates will be higher by the end of this year.

First-time buyers are extremely price sensitive and may be shut out of the market if rates increase. After all, they also have to contend with rising property values and price wars that are breaking out in some parts of the country. Lawrence Yun, chief economist at the National Association of Realtors, told the The Seattle Times that interest rates are very important to first-time buyers, which is why they are paying close attention to the moves in the cost for a home loan. He said buyers need to act quickly because mortgage rates are likely to be higher in three to six months.

While mortgage rates have declined for five out of the past six weeks, first-time buyers have more than the cost of borrowing to contend with. Given a shortage of affordable properties on the market, bidding wars are breaking out and driving the property values out of the reach of many. It’s partly the reason mortgage applications have been on the decline in recent weeks.

According to the Mortgage Bankers Association’s Weekly Mortgage Applications Survey, applications for new home loans decreased 4.9% week over week on a seasonally adjusted basis for the week ending June 22. On an unadjusted basis, the index dipped 6% compared with the week earlier. Meanwhile, the Refinance Index decreased 4% compared with the week earlier, while the Purchase Index decreased 6% on a seasonally adjusted basis and was down 7% on an unadjusted basis. The Purchase Index was 1% higher than the same week one year ago. Refinance activity increased as mortgage rates declined, with refinances accounting for 37.6% of total applications, up from 36.8% in the previous week. The adjustable-rate mortgage share decreased to 6.5% of total applications.

Source: Investopedia dot com; Donna Fuscaldo

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Housing Predictions Through 2020

Wed, 6 June 2018

Affordable home shortage to continue through 2018, new Reuters poll says.

An acute shortage of affordable homes in the United States will continue over the coming year, according to a majority of property market analysts polled by Reuters, driving prices up faster than inflation and wage growth.

After losing over a third of their value a decade ago, which led to the financial crisis and a deep recession, U.S. house prices have regained those losses — led by a robust labor market that has fueled a pickup in economic activity and housing demand.

But supply has not been able to keep up with rising demand, making home ownership less affordable. Annual average earnings growth has remained below 3 percent even as house price rises have averaged more than 5 percent over the last few years.

The latest poll of nearly 45 analysts taken May 16-June 5 showed the S&P/Case Shiller composite index of home prices in 20 cities is expected to gain a further 5.7 percent this year.

That compared to predictions for average earnings growth of 2.8 percent and inflation of 2.5 percent 2018, according to a separate Reuters poll of economists.

U.S. house prices are then forecast to rise 4.3 percent next year and 3.6 percent in 2020.

“We are not seeing a temporary phenomenon. House prices have been outrunning family incomes for several years in the U.S. and while demand has cooled off a bit, the supply side is still very tight,” said Sal Guatieri, senior economist at BMO Financial Group.

“I think house prices will continue to outrun family incomes for at least another year and it will take some time for demand to slow and to some extent supply to increase.”

The latest poll comes after weak existing and new home sales data for April.

A further breakdown of the April data showed the inventory of existing homes had declined for 35 straight months on an annual basis while the median house price was up for a 74th consecutive month.

About 80 percent of nearly 40 analysts who answered an extra question said the already tight supply of affordable homes in the United States will either stay the same or fall from here over the next 12 months.

Existing home sales, which account for about 90 percent of U.S. turnover, are now forecast to rise slightly and average 5.60 million units in each quarter this year from about 5.46 million units in April.

That is well below the peak of 7 million units averaged during the previous housing market boom, which will keep prices elevated and make housing less affordable.

When asked to rate the affordability on a scale of 1-10 where 1 is extremely cheap and 10 is extremely expensive, the median answer was 7.

“U.S. house prices are slightly over-valued when looking at fundamental valuation metrics such as the median-home-price-to-income ratio,” noted Brent Campbell, economist at Moody’s Analytics.

A pricier market is likely to push many people to rent rather than buy.

But even renting a home in major U.S. cities will become more expensive relative to average income, according to about 60 percent of nearly 40 analysts who answered an additional question.

Another potential hurdle for home buyers are rising mortgage rates. According to the poll the average 30-year mortgage rate will rise to 4.60 percent by year-end and then touch 5.0 percent by end-2019.

Those figures are a slight upgrade from the previous poll in February but seem to be in line with economists’ expectations for the Federal Reserve to tighten policy more than what the central bank’s most recent forecasts suggest.

“With mortgage rates continuing to rise, affordability is getting steadily worse,” noted Jonas Goltermann, developed market economist at ING.

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Property Values By State From 2005-2017

Home price appreciation is an important topic in today’s economy. Using data from the American Community Survey (ACS), we can analyze the gains and losses of property values over time. I estimated the median property values by state in 2017 using the FHFA index and the median property values from the (ACS). I then calculated the growth rate from 2005 -2017. [1]

The states with the highest estimated median property values in 2017 are Hawaii ($637,892), District of Columbia ($605,756), California ($522,431), Massachusetts ($396,992), and Colorado ($342,967).

The states with the lowest estimated median property values in 2017 are Alabama ($141,714), Oklahoma ($137,387), Arkansas ($129,902), West Virginia ($122,791) and Mississippi ($118,019).

On a regional level, the estimated price growth appears to be the strongest in the South, West, and Midwest. Price growth is weakest in the Northeast states. Overall, all regions are displaying growth in property values with only a few states showing no growth or loses. Below is a breakdown of the Census four regions by state.

  • In the South, which typically leads all regions in sales, Texas led the region with 63 percent estimated price growth from 2005 to 2017. Although Florida experienced strong price growth since 2012, home prices have only increased by 14 percent since 2005 when house prices were still generally at peak levels.

  • In the West, the least affordable region[2], Montana led all states with 71 percent price growth from 2005 to 2017. Despite the strong price growth in California since 2012, prices have only increased by 9 percent since 2005. Nevada shows a negative 5 percent price change over this time.


  • In the Midwest where affordability is most favorable, North Dakota led all states with 111 percent price growth from 2005 to 2017. The increase is likely due to the boom in shale oil production up until 2014 when oil prices started collapsing. Illinois, while having the smallest growth in the region had an estimated 7 percent price growth over this time.

  • In the Northeast where price growth is typically slow, Pennsylvania lead the region with a 40 percent price growth from 2005 to 2017. Rhode Island was the only state to have a decline of negative 4 percent price change over this time.

SOURCE: Realtor dot org, Michael Hyman

City of San Diego Slashes Fees for Granny Flat Construction to Help End Housing Crisis

It will cost much less to build a companion unit – or “granny flat” – on your property in the city of San Diego.

Until now, homeowners have paid $40,000 or more in government fees alone, before even starting construction on a companion unit.

By a unanimous vote, with Councilmember David Alvarez absent, the city council Monday slashed those fees by more than 60 percent.

“With these new incentives, we’re removing barriers to encourage the construction of new units that San Diegans can actually afford,” Mayor Kevin Faulconer said in a news release issued after the council’s approval.

NBC 7 Elena Gomez reports on the plan by city officials to address housing shortages by streamlining the granny flat construction process.

Faulconer said the city will make other changes to help homeowners design and build companion units, which he hopes will add at least 2,000 new units to the city’s housing stock by 2028.

The mayor’s office noted that more than 70 percent of San Diegans can’t afford to buy a home at the county’s median home cost of more than $550,000. That makes San Diego one of the nation’s most expensive housing markets

During Monday’s discussion, councilmembers noted that granny flats – built next to, above, or behind an existing home – can help alleviate housing shortages.

In late 2017, the San Diego City Council approved a package of housing reform measures to tackle the local housing crisis. The approved measures will make it easier to build granny flats and speed up the permit process for the construction of new homes.

The change means there will be less hassle during the permit process. There are even how-to manuals for building the granny flat to fit within city standards.

The law is meant for homeowners who have a home but have extra space in their yard or garage to add a granny flat. It was not designed for vacant lots.

According to the city, the average rent in San Diego has reached more than $1,700 a month and the average price of a home exceeds $550,000. Families also spend approximately 30 percent of their income on housing.

Source: NBC San Diego, Paul Krueger