Despite home prices increasing in 91 percent of U.S. Markets, it’s what’s happening in the other nine percent that is most telling.
That’s because where the prices are slipping are in some of the costliest markets, according to a report on the second quarter of 2019 released by the National Association of REALTORS® (NAR) in August.
High cost regions out West, like San Jose-Sunnyvale, Santa Clara and San Francisco-Oakland-Hayward in California and urban Honolulu in Hawaii, saw their prices drop from the same time in 2018, an indicator that would-be homebuyers are more likely to not purchase a home now, when the amount of affordable properties is scarily low.
Americans seem more resistant to overpaying for homes now as housing prices rapidly outpaced incomes. Couple that with such a limited supply of lower-end properties, potential buyers are tending to remain in that “potential” category and not shifting into the “homeowner” category.
“Housing unaffordability will hinder sales irrespective of the local job market conditions,” Lawrence Yun, chief economist for NAR, said in the report. “This is evident in the very expensive markets as home prices are either topping off or slightly falling.”
“New home construction is greatly needed however home construction fell in the first half of the year.”
On the whole though, prices increased in 162 of the 178 metropolitan markets measured in the NAR report. On the whole, the median price increase for a pre-owned, single family home jumped to $279,600, a 4.3 percent increase from 2018.
According to the report, 10 metro areas experienced double-digit percentage increases, including moderate-cost metro areas of Boise City-Nampa, Idaho; Abilene, Texas; Columbia, Mo.; Burlington-South Burlington, Vt. and Atlantic City-Hammonton, N.J.
“New home construction is greatly needed however home construction fell in the first half of the year,” Yun said. “This leads to continuing tight inventory conditions, especially at more affordable price points. Home prices are mildly reaccelerating as a result.”
In total, 93 of the markets studied saw a price increase of at least five percent.
The five most expensive housing markets in the second quarter were San Jose-Sunnyvale-Santa Clara, Calif. ($1,330,000), San Francisco/Oakland/Hayward, Calif. ($1,050,000), Anaheim/Santa Ana/Irvine, Calif. ($835,000), Honolulu ($785,500), and San Diego/Carlsbad, Calif. ($655,000).
The five lowest-cost metro areas in the second quarter were Decatur, Ill. ($97,500), Youngstown/Warren/Boardman, Ohio ($107,400), Cumberland, Md. ($117,800), Binghamton, N.Y. ($119,300) and Elmira, N.Y. ($119,400).
Despite estimates that suggest the median family income has increased to $78,366 in the second quarter, the faster growth of home prices caused a decrease in affordability from the first quarter of 2019.
Statistically, a buyer making a down payment on a home of 5 percent would need an income of $62,192 to purchase a home at the national median price. The required income comes down for larger down payments ($58,918 for 10 percent down, $52,372 for 20 percent down).
Compare that though for someone trying to buy a home in San Jose though. Families who want to avoid paying no more than 25 percent on mortgage payments, need an annual income of $295,832. In San Francisco it’s only slightly better at $233,552.
According to the report, 1.93 million existing homes were for sale in the U.S. at the end of the second quarter, which is on par with 2018.
“The exceptionally low mortgage rates will help with housing affordability over the short run, Yun said. “But if the low interest rates are due to weakening economic confidence, as reflected from a correction in the stock market, then the low rates will not help with job growth and will eventually hinder home buying and home construction.