Strong year-over-year price gains are starting to take a bite into housing affordability, particularly in the West, according to the National Association of REALTORS®’ latest quarterly report.
The median single-family home price rose in 73 percent of the markets, or 119 out of 164 metro areas, in the fourth quarter of 2013, with 26 percent, or 42 of those metros, posting double-digit gains.
“The vast majority of home owners have seen significant gains in equity over the past two years, which is helping the economy through increased consumer spending,” says Lawrence Yun, NAR’s chief economist. “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.”
The national median existing single-family home price in the fourth quarter was $196,900, up 10.1 percent from $178,900 one year earlier.
NAR’s Housing Affordability Index, calculated on the relationship between median home prices, median family incomes, and the average effective mortgage interest rate, dropped to 175.8 in 2013 from a record high of 196.5 in 2012. The higher the index, the stronger household purchasing power is, according to NAR.
Yun says tight inventories have accounted for most of the double-digit price growth. The average supply of homes for sale in the fourth quarter was 4.9 months – an improvement over the 4.8 months a year ago, but still not what most economists consider healthy of a 6 to 6.5 month supply. Yun says that new home activity needs to increase in fast appreciating markets to help relieve the upward pressure on home prices.
“Added housing supply will help moderate price growth this year, and should help to stem erosion in affordability, but mortgage interest rates are projected to rise above 5 percent by the end of the year,” Yun says.
The five priciest housing markets in the fourth quarter were:
- San Jose, Calif.: $775,000
- San Francisco: $682,400
- Honolulu: $670,800
- Anaheim-Santa Ana, Calif.: $666,300
- San Diego: $476,800
On the other hand, according to NAR’s report, the following metro areas had the best housing affordability conditions in 2013:
1. Toledo, Ohio
2. Rockford, Ill.
3. Decatur, Ill.
4. Lansing-East Lansing, Mich.
5. Springfield, Ill.
By REALTOR® Magazine Daily News