After Tuesday’s Case-Shiller report showed a 6.4% increase in home prices, experts in the housing market say wage disparities and lacking inventory as critical motivators.
“The ongoing housing shortage has been pushing up home prices well above income growth,” National Association of Realtors Chief Economist Lawrence Yun said. “Prices were generally rising more strongly in the lower price brackets, while the prices of expensive homes are beginning to level off; there are, however, unambiguous signs of home prices softening across the board.”
Yun attributes buyer apprehension largely to rising mortgage rates and steadily increasing interest rates. He claims that additional inventory will be critical for consumer affordability.
Earlier this month, sharply elevated lumber prices contributed to homebuilder confidence slipping two points to 68, according to the National Association of Home Builders/Wells Fargo Housing Market Index.
Genworth Mortgage Insurance Chief Economist Tian Liu says lumber prices could also determine homebuyer affordability.
“We see tariffs placed on Canadian lumber and other imported products as adding fuel to already high home price growth,” Liu said. “We had hoped that the implementation of the tax reform would be a catalyst for homebuilders to pass on cost savings to homebuyers and expand the production of more affordable homes.”
Liu says instead tariffs could force homebuilders to hold tight on price amid uncertainties about rising material costs.
Certainly, markets in Seattle, Las Vegas and San Francisco are feeling uneasy, because they continuously have the highest year-over-year gains.
This month, Seattle led with a year-over-year price increase of 13.1%, Las Vegas had a 12.7% price increase and San Fran Cisco increased 10.9%, according to the Case-Shiller report.
Realtor.com Chief Economist Danielle Hale said consumers in these states are suffering from wage disparities.
“Today’s Case-Shiller data on home prices covering repeat sales transactions from February, March and April shows a slight deceleration in growth, but home price growth – especially in the West – still continues to outpace income growth,” Hale said. “In spite of price increases, inventory remains limited and declining in Las Vegas and San Francisco, while price increases appear to be bringing more inventory to the market in Seattle.”
Will Americans be able to afford homes as prices increase? Keller Williams Chief Economist Ruben Gonzalez predicts that the continual upward trend will be fueled by their demand.
“We expect home prices will continue to rise quickly this summer. Mortgage rates have leveled off at the moment, and we are continuing to see year-over-year declines in inventory levels,” Gonzalez said. “As supply continues to be the primary restrictive factor on sales, we expect demand to continue to drive prices up in the range of 6 to 8% in the next couple of months.”