Home prices increased yet again in the second quarter, outpacing wage growth, according to the latest quarterly report by the National Association of Realtors.
This is causing affordability to decline despite historically low mortgage interest rates, according to the trade group’s head economist.
Low rates are normally an incentive to get a mortgage, but not in this, current housing market.
In fact, prices rose so much that in San Jose, California, the median single-family home price hit above $1 million.
With affordability falling, it’s not surprising that homeownership continues to decrease. In fact, it is now at it’s lowest rate since 1965. That being said, some experts have their own theories as to why homeownership is so low.
The median single-family home price increased in 83% of measured markets, about 148 out of 178 metropolitan statistical areas. The gains are based on closed sales in the second quarter compared to the second quarter last year.
On the other hand, 16% of the areas, 29 metros, showed lower median home prices than last year.
There were fewer increasing markets in the second quarter compared to the first quarter when prices increased in 87% of metro areas.
In the second quarter, 14% or 25 metro areas saw double-digit increases. This is slightly less than the first quarter’s 28% and last year’s 19% of metros that saw double-digit increases.
“Steadily improving local job markets and mortgage rates teetering close to all-time lows brought buyers out in force in many large and middle-tier cities,” NAR Chief Economist Lawrence Yun said.
“However, with homebuilding activity still failing to keep up with demand and not enough current homeowners putting their home up for sale, prices continued their strong ascent, and in many markets at a rate well above income growth,” Yun said.
Although the median home price hit extreme highs in San Jose, for the rest of the nation, median home prices rose 4.9% to $240,700 in the second quarter, up from last year’s $229,400.
Total existing home sales also increased by 3.8% to a seasonally adjusted rate of 5.5 million in the second quarter, up from 5.3 million last quarter. It is also up 4.2% annually from last year’s 5.28 million.
“Primarily from repeat buyers moving up or trading down, existing sales increased each month last quarter and could’ve been even higher if not for a few speed bumps,” Yun said. “Closings were slowed a bit by meager supply levels and home prices in many areas that are still rising too fast.”
Housing supply continues to be constricted, and even decreased from last year’s 5.1 month’s supply, to 4.7 months in the second quarter.
Without enough new construction being built, existing inventory seriously failed to keep up with the growing demand for buying, Yun said. As a result, homes typically stayed on the market for around a month throughout the second quarter, and over 40% of listings sold at or above list price, with June’s 43% hitting the highest share since NAR began tracking in December 2012.
“Many listings in a majority of markets – and especially those in lower price ranges – had multiple offers and went under contract quickly because of severely inadequate supply,” added Yun. “This in turn dented affordability and without a doubt priced out a segment of buyers attempting to seek relief from fast-growing rents.”