In the fourth quarter of 2019, 94% of measured markets experienced home value gains when compared to the same time in 2018, according to the National Association of Realtors (NAR).
While inventory levels loosened slightly in the final quarter of the year, home prices jumped from $258,000 in Q4 of 2018 to $274,900 in Q4 of 2019.
Homeowners are in a great position, with a national average increase of 6.6% in their home’s value, representing their largest financial investment. We all want those kind of returns, but when future buyers are squeezed out of the market, there is no one to buy said financial investment.
Dr. Lawrence Yun, NAR Chief Economist said, “It is challenging – especially for those potential buyers – where we have a good economy, low interest rates and a soaring stock market, yet are finding very few homes available for sale. We saw prices increase during every quarter of 2019 above wage growth.”
Combine tight inventory levels and rising prices, and buyer conditions are restricted. The ray of hope in the market, however, is shrinking mortgage rates, making it more affordable to buy – the 30-year fixed rate averaged 3.76% in the fourth quarter, down from 4.95% one year ago.
NAR reports that with lower mortgage rates, the income needed for a family to afford a mortgage fell to $48,960 from $52,896 one year ago. When looking at a share of the estimated national median family income of $79,740, a family spent 15.3% of their income on mortgage (versus 17.2% in Q4 2018).
Dr. Yun observed that rising home prices create wealth gains for homeowners, but warned that “areas that are deemed ‘too expensive’ will obviously have trouble attracting residents and companies looking to do business there.”
The fix, says Dr. Yun, is “a good balance that benefits both current and future homeowners, but right now, the balance is still in favor of home sellers.”
In recent years, NAR has pointed to home builders as the primary driver of market alleviation, as housing starts could improve restricted inventory levels and allow more interested buyers into the market, particularly first time buyers.
Other alleviative factors include whether or not Federal Reserve Chairman Jerome Powell holds steady and doesn’t change rates (as he has indicated he doesn’t intend to if the economy remains on it’s present path), as well as strong international trade deals, and an improving stock market driving investments across the board.
None of today’s news is a surprise, as Dr. Yun already indicated the 2020 market would likely include rising home prices and low interest rates.