Home prices keep soaring, but there's a glimmer of hope
The summer lull in home sales failed to keep prices from rocketing higher.
According to the National Association of Realtors (NAR), the median existing-home price surged to $407,100 in August, representing a 3.9% increase compared to the previous year. All while sales decreased by 0.7%
Plus, the S&P CoreLogic Case-Shiller Index continued to trend upward in July, with 19 out of 20 major metropolitan markets reporting month-over-month increases in prices.
Home prices are rising everywhere you go as razor-thin inventories and demand keeps the market afloat.
"On a year-to-date basis, the National Composite has risen 5.3%, which is well above the median full calendar year increase in more than 35 years of data,” Craig J. Lazzara, managing director at S&P DJI, said of the major 20 metropolitan markets.
“All of the cities at all-time highs are in the Eastern or Central time zones, and with two exceptions (Dallas and Tampa), all of the cities not at all-time highs are in the Pacific or Mountain time zones.”
Challenges for prospective homebuyers
As existing homeowners keep holding onto homes mortgaged at rock-bottom rates, many first-time buyers have virtually no chance to enter the market.
By the end of the year, it’s estimated that 2.5 million first-time buyers will be fully out of the market due to affordability challenges, according to Nadia Evangelou, senior economist with the NAR.
Based on the NAR’s latest data, first-time buyers would need to pony up over $81,000 to hit the coveted 20% down payment mark. And that doesn’t include closing fees and realtor costs.
High home prices also have a cascading effect on rental markets.
People who are priced out of homeownership turn to renting, driving up rent prices and making it harder for younger would-be homeowners to save up for a down payment.
“By almost every measure—rents, home prices, interest rates—this group [millennials] expects to pay more for housing even as it already takes up one-third of their household income,” Bank of America analysts wrote in their eighth annual millennial housing survey published in May.
A light at the end of the tunnel
As the saying goes, where there’s a will, there’s a way. For Americans, there remains a strong will to become a homeowner one day.
“The desire for homeownership remains strong,” said Sylvia Alvarez, executive director of the Housing and Education Alliance, a Tampa-based consulting firm. “With the right strategies and support, more Americans can achieve their dream of owning a home.”
While there are no quick fixes, experts say a combination of increased housing supply, targeted government programs, and prudent interest rate policies can help bridge the affordability gap.
But that’s easier said than done.
According to Realtor.com, the cumulative housing shortage has reached 6.5 million units when accounting for the pace of construction over the past decade. The construction industry complains about a lack of workers, supply shortages, and higher input costs.
The one silver lining in today’s market seems to be building permits, which signal builders’ intent to construct new houses. Nationwide building permits jumped by 6.9% to a rate of 1.543 million units last month, the highest in nearly a year.
The Fed also paused rate hikes at its September meeting, and some economists are hopeful that rates could start coming down as early as next year.
Until then, housing affordability is unlikely to improve.