Affordability haunts home sales
Home prices are ascending, leaving many checkbooks behind.
With low inventory levels already having a dramatic impact on home sales this year, prices continue to grow even higher. And in many markets, the price tags are rapidly overtaking incomes and affordability.
The national median existing single-family home price in the second quarter was $269,000, up 5.3% from $255,400 for the second quarter of 2017, according to the National Association of Realtors (NAR). The median sales price during this year’s first quarter increased 5.7% from the first quarter of 2017.
Within 90% of the markets measured by the NAR, single-family home prices increased with 161 out of 178 metro markets demonstrating gains in the second quarter. Double-digit growth has occurred in 24, or 13%, of the markets, down from 30% in the first quarter.
According to Lawrence Yun, chief economist of the NAR, slim pickings on the market continues to add sizzle to prices.
“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,” Yun 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 sales, including single family and condos, decreased 1.7% 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% 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 sale, which was 0.5% 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.
Although the national family median income rose to $75,106 in the second quarter, overall affordability decreased from a year ago because of higher mortgage rates and increasing home prices.
To purchase a single-family home at the national median price, a buyer making a 5% down payment would need an income of $64,239, a 10% down payment would require an income of $60,858, and $54,096 would be needed for a 20% 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.
The tech region of San Jose, Calif. remains the hottest market around with median existing single-family price at $1.405 million. Right behind it is the San Francisco-Oakland-Hayward, Calif. region where the median price is $1.07 million. The Anaheim-Santa Ana-Irvine, Calif. is third at $830,000 per median price, outpacing urban Honolulu at $795,200 and San Diego-Carlsbad at $645,000.
The five lowest-cost metro areas in the second quarter were Youngstown-Warren-Boardman, Ohio at $94,400; Cumberland, Md. at $94,900; Decatur, Ill. at $96,900; Elmira, N.Y. at $106,300; and Erie, Pa. at $121,700.
By region, total existing-home sales in the Northeast were at an annual rate of 683,000 – flat compared to the first quarter 2018 but down 8.9% from the second quarter a year ago. The median existing single-family home price in the Northeast was $288,900 in the second quarter, up 2.3% from a year ago.
In the Midwest, existing-home sales rose 1.6% in the second quarter but are 2.8% below a year ago. The median existing single-family home price in the Midwest grew 3.5% to $210,600 in the second quarter from the same quarter a year ago.
Existing-home sales in the South declined 2.7% in the second quarter but are 0.6% 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% percent above a year earlier.
In the West, existing-home sales in the second quarter decreased 4.1% and are 3.6% below a year ago. The median existing single-family home price in the West increased 8.3% to $403,300 in the second quarter from the second quarter of 2017.
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