Good news, bad news
Home sales in the fourth quarter hit the highest pace of the year, pushing inventory levels to record lows while pushing up housing prices, according to the National Association of Realtors (NAR).
The study indicates that in more than half of the markets measured since 2005, sales prices are now at or above their previous peak level. For all of 2016, 87 percent of measured markets saw home prices rise, up from 2015 (86 percent) and 2014 (75 percent).
[clickToTweet tweet=”Home sales surge: GREAT news for homeowners’ home values, BAD news squeezed out buyers.” quote=”This is phenomenal news for homeowners sitting on appreciated properties, but bad news for potential homebuyers being squeezed out of the market by suffocating affordability conditions and limited availability.”]
Supply and demand
Lawrence Yun, NAR chief economist, says home-price gains showed little evidence of letting up through all of 2016. “Buyer interest stayed elevated in most areas thanks to mortgage rates under 4 percent for most of the year and the creation of 1.7 million new jobs edging the job market closer to full employment,” he said.
“At the same time,” he noted, “the inability for supply to catch up with this demand drove prices higher and continued to put a tight affordability squeeze on those trying to reach the market.”
Added Yun, “Depressed new and existing inventory conditions led to several of the largest metro areas seeing near or above double-digit appreciation, which has pushed home values to record highs in a slight majority of markets. The exception for the most part is in the Northeast, where price growth is flatter because of healthier supply conditions.”
Prices on the rise
The national median existing home price in Q4 rose 5.7 percent over the year to $235,000.
The year ended with 1.65 million existing homes available for sale, a remarkable 6.3 percent below the close of 2015, and the lowest level since NAR began tracking the supply of all housing types in 1999.
The average supply during the fourth quarter was 3.9 months – down from 4.6 months a year ago.
In the Northeast, sales rose 10.5 percent from the previous quarter and 6.4 percent over the year. The median home price fell 0.2 percent in the last year to $254,100.
Sales in the Midwest increased 2.3 percent in the fourth quarter, rising 8.8 percent above a year ago. The median home price rose 5.7 percent over Q4 2015 to $181,100.
In the South, sales increased 2.6 percent for the quarter, marking a 5.4 percent increase over the year. The median home price surged 7.9 percent in the last year to $210,500.
Sales in the West rose 1.6 percent from the previous quarter, and are 9.1 percent above a year ago. The median home price rose 7.8 percent in a year to $348,800.
Affordability problems linger
In recent years, NAR has endlessly warned of the tightening affordability conditions that stand to squeeze some interested homebuyers out of the market.
Despite what they call a “meaningful increase in the national family median income ($70,831),” rising mortgage rates and home prices weakened affordability conditions compared to 2015.
The report notes: “To purchase a single-family home at the national median price, a buyer making a 5 percent down payment would need an income of $51,017, a 10 percent down payment would require an income of $48,332, and $42,962 would be needed for a 20 percent down payment.”
Yun concluded, “Even a pick-up in wage growth may be insufficient to compensate the impact of higher mortgage rates and home prices. Increased homebuilding will be crucial to alleviate supply shortages and stave off the affordability hit.”
Here’s to hoping homebuilders will be able to loosen this chokehold.