Navigating the Housing Market

In 2022 ConsumerAffairs published a study that found 63% of respondents were hoping for a housing market “crash,” thinking a plunge in prices would make it easier for them to buy a home.

In early 2023, home prices on a national average basis began to go down. The median home price declined slightly for five straight months. Then in July, prices started rising again.

If there was a housing “crash,” economists say that might have been it. Shorter than predicted and not much of a crash at all.

But how can people afford homes priced near record highs when mortgage rates are now well over 7%, more than double what they were in late 2021? The truth is, many can’t. But that doesn’t seem to matter.

Those high mortgage rates are preventing current homeowners from selling. They don’t want to give up their 3% mortgage rate for one north of 7%.

There’s still a housing shortage

Because they aren’t selling, the housing shortage – which began more than a decade ago – is getting worse. There are enough buyers who can afford today’s high prices and lofty mortgage rates so that when a home comes on the market, there is still competition for it, which often drives up the price.

If you look at home sales you might think we are in the midst of a housing market crash. The National Association of Realtors (NAR) reports sales of existing homes fell 2.2% in July from the month before. Compared to July 2022, sales plunged 16.6%.

If sales fell by that amount and there were lots of homes on the market then it probably would be a housing market “crash” and prices would fall accordingly. But sales fell because there simply weren’t enough homes on the market and instead of pushing prices lower, may actually have contributed to the price increase.

Foreclosures, which were largely responsible for the last housing market crash, are almost non-existent these days. NAR reports distressed sales – foreclosures and short sales – represented 1% of sales in July, virtually unchanged from the previous month and the previous year.

'The supply just isn't there'

“Even in a market where demand has been hammered by higher rates, the supply just isn’t there,” Diane Swonk, chief economist at KPMG, told the Wall Street Journal. “Short of a flood in supply, it’s hard to bring these prices down.”

So now buyers are faced with the double whammy of higher home prices and high mortgage rates. NAR reports the median existing home price for all housing types in July was $406,700, an increase of 1.9% from July 2022, when the median price was $399,000. Prices rose in the Northeast, Midwest and South but were unchanged in the West, which has some of the most expensive housing markets in the country.

Finally, there may be some good news for people who want to buy a home. Even though the national median home price has started going up again, there are markets where the list prices are falling.

Austin, Phoenix and San Jose have seen home prices fall since the beginning of the year, but those markets were already among the most expensive in the nation. But now price declines are beginning to show up in cities whose median home price was already below the national average.

“Generally, there are two things that can drive an increase in price reductions,” said Realtor.com Chief Economist Danielle Hale. “One is if you have more homes on the market. Two is if there is a mismatch between what sellers are expecting and what buyers are willing and able to afford.”

In this case, it’s the latter. Inventory levels remain near historic lows but with mortgage rates now well above 7%, there is a limit to what buyers are willing and able to pay, especially in job markets where the prevailing salary is significantly below those in more expensive cities.

According to Realtor.com, 29 of the 150 largest metropolitan areas saw a year-over-year increase in the number of homes where the list price had gone down. Across the country, only about 15.5% of all homes listed on Realtor.com underwent a price cut that month. That was down from 19.1% the previous July.

Cities with the most price cuts in July

The data show cities with the most price declines tend to be in the South and Midwest, where the number of homes for sale has been growing along with prices. With a recent study showing remote workers would be willing to move in order to find an affordable home, these markets may be worth a look:

1. Huntsville, Ala.

2. Lafayette, La.

3. McAllen. Texas

4. Jackson, Miss.

5. Augusta, Ga.

6. Memphis, Tenn.

7. Fort Collins, Colo.

8. Cape Coral, Fla.

9. Greenville, S.C.

10. Fort Wayne, Ind.

Huntsville had, by far the largest median home price – $407,000 – so it also experienced the most price cuts. The number of price cuts increased by 69% over July 2022.

But even McAllen, Texas, with a median home price of $289,000, experienced a 50% increase in price cuts year-over-year.

Realtors say sellers who set a realistic price from the start usually don’t have to cut the price to sell. In Fort Wayne competition remains fierce for homes priced below $250,000, with these properties often receiving multiple offers.

For the last half of 2022 and the first half of 2023, YouTube pundits professing knowledge of the housing market predicted a crash in home prices. It didn’t happen.

In fact, for the last few months, home prices have actually started going up again, defying mortgage rates that are twice what they were just two years ago. In June, the average new mortgage payment hit a record-high of $2,656.

S&P CoreLogic Case-Shiller’s home price index is a lagging indicator of home prices but its latest report shows U.S. home prices rose for a fourth consecutive month in May. But it noted that regional price differences are getting wider. Some markets may be losing ground but others are making gains.

On a national, seasonally-adjusted basis, home prices rose 0.7% from April’s home prices. Compared to May 2022, however, prices were 0.5% lower.

‘Broad-based rally’

"The ongoing recovery in home prices is broadly based,” said Craig J. Lazzara, managing director at S&P Dow Jones Indices. “Before seasonal adjustment, prices rose in all 20 cities in May as they had also done in March and April. Seasonally adjusted data showed rising prices in 19 cities in May, repeating April's performance.

The outlier is the Phoenix housing market, which saw huge price gains from 2020 to 2022. All of this is happening as mortgage rates continue to flirt with 7%, compared to just under 3% in late 2021.

So the question should be asked – is now a good time to buy a home? If you ask a real estate agent, you can bet the answer will be “yes.” But what about asking someone a bit more objective?

Reasons to buy now

In an interview with investment website The Street.com last month, personal finance guru Dave Ramsey said he thought now is a good time to buy, under certain circumstances. Ramsey said buyers need to have little debt and have an emergency fund available.

Because of high interest rates, Ramsey said there is less competition to get the home you want. He also notes there continues to be a housing shortage.

In a recent interview with ConsumerAffairs, Christopher Stout, principal at StoutCap, a real estate investment firm, said that lack of inventory has made it hard for buyers.

“The market has been generally frozen now, for almost a year,” he told us. “From what we see, values have changed so rapidly that there is an emotional reaction to not want to believe what the ‘new normal’ is. More inventory will hit the market and buyers will determine value. From there, values will climb over time.”

Another bullish indicator are the national home builders. As they reported second-quarter earnings their stocks soared because profits were up and so were margins.

In spite of predictions they would be unable to sell expensive homes in a high interest rate environment, they seem to be selling everything they build.

If the spring housing market was a bust for would-be homebuyers, the summer isn’t shaping up any better.

People who purchased a home in the last few weeks may be saddled with an average mortgage payment that has never been higher, according to real estate broker Redfin. Its report shows high home prices and an uptick in mortgage rates pushed the typical homebuyer’s monthly payment up to a record $2,656. 

Daily average mortgage rates are starting to moderate, thanks to cooling inflation, but Redfin says house payments are likely to remain elevated because even slightly lower rates may escalate competition for the few homes on the market and push up prices for the foreseeable future.

In a normal market, a decline in home sales would probably lead to some housing bargains. That isn’t happening because there is still strong demand for nearly every home that is on the market. Low inventory levels are keeping home prices from falling back to earth.

Redfin’s Homebuyer Demand Index, a measure of early-stage demand that tracks requests for tours and other buying services from Redfin agents, is up 2% from a year ago. Pending home sales are down 15% year over year, but new listings are down 25%, with homeowners who have a low mortgage rate reluctant to move.

The total number of homes for sale is down 16%, the biggest drop in a year and a half. For this time of year, there is an unusual decline in new listings.

Adjusting to higher mortgage rates

“Even though buyers are trepidatious about high mortgage rates, we’re seeing bidding wars in several pockets of the market because there are so few options and even fewer good options,” said Redfin Premier agent Jordan Hammond, of Raleigh, N.C. “Condos, townhouses and new construction homes are selling quickly, partly because they don’t require much work and people can’t afford to fix up a home when they have such high monthly mortgage payments.”

After over a year of high mortgage rates, Hammond says buyers have gotten over the shock and are adjusting to cutting expenses in order to pay their mortgage. He said they are also searching for smaller homes, and “thinking outside the box to reduce their monthly payments, doing things like rate buydowns or large down payments.”

The daily average 30-year fixed mortgage rate was 6.87% on July 19, down from a half-year high of 7.22% two weeks earlier. For the week ending July 13, the average 30-year fixed mortgage rate was 6.96%, the highest level since November.

In late 2022, when home prices leveled off in the face of rising mortgage rates, many prospective homebuyers hoped for a major housing market correction. Many “experts” on YouTube have been predicting a market crash for months.

So far, it hasn’t happened. In fact, one industry report says prices in many areas of the country are still going up, even while sales decline.

The S&P CoreLogic Case-Shiller Indices, a thorough but lagging indicator of U.S. home prices, shows home prices recovered in March in all 20 major metro markets it monitors. Prices were up over February but down compared to March 2022. But there were plenty of exceptions.

Miami, Tampa, and Charlotte reported the highest year-over-year gains among the 20 cities in March. Miami led the way once again with a 7.7% year-over-year price gain, followed by Tampa in second with a 4.8% increase, and Charlotte replacing Atlanta in third with a 4.7% increase. 

Prices are down in the most expensive markets

The cities where prices have fallen tend to be markets where prices have increased the most over the last couple of years. There are 19 of 20 cities reporting lower prices in the year ending March 2023 compared to the year ending February 2023, but even Chicago showed a small increase in March.

So why are prices going up again when the economy is slowing and mortgage rates remain above 6%? Housing experts say the answer is simple – it’s supply and demand.

Yes, it’s more expensive now to buy a home but there appear to be more people willing and able to buy than there are available homes. Greg McClure, a Realtor with Realty ONE Group in Sacramento, says that’s the case in his market.

“Sales are trending up, home prices are trending up but inventory will remain an issue through the rest of the year,” McClure recently told us.

Buyers face more competition

The lack of inventory means there is more competition among buyers. Homes don’t remain on the market for very long and sellers sometimes get multiple bids, even in this high interest rate environment.

The National Association of Realtors (NAR) reports sales of existing homes dropped 3.4% in April but the median price declined only slightly. In many markets, it went up.

"Roughly half of the country is experiencing price gains," said Lawrence Yun, NAR’s chief economist. "Even in markets with lower prices, primarily the expensive West region, multiple-offer situations have returned in the spring buying season following the calmer winter market. Distressed and forced property sales are virtually nonexistent."

Housing experts say this situation exists largely because the pace of building new homes has slowed considerably for more than a decade. New single-family home construction peaked in 2006 and hasn’t approached that level over the last 17 years.

There’s good news for would-be home buyers. The median home price in February fell 0.2% from February 2022, the first decline in home prices in 11 years. Home prices had continued rising since October, even after a surge in mortgage rates brought sales to a standstill.

But here’s why buyers shouldn’t get too excited. Existing home sales surged in February, rising 14.5%, according to the National Association of Realtors (NAR). Buyers reentered the market when mortgage rates began to decline. A sustained increase in demand for homes could push prices back to near their record highs.

Another factor that could be working against buyers during the spring housing season is a lack of supply of homes to choose from. 

The total housing inventory registered at the end of February was 980,000 units, identical to January and up 15.3% from one year ago. Unsold inventory sits at a 2.6-month supply at the current sales pace, down 10.3% from January but up from 1.7 months in February 2022.

"Inventory levels are still at historic lows," said NAR Chief economist Lawrence Yun. "Consequently, multiple offers are returning on a good number of properties."

Multiple offers are good for sellers but not for buyers. When buyers have to compete for a property, they are more likely to pay full price or more and overlook flaws they would otherwise request the seller to address.

Doesn't tell the entire story

The decrease in the median home prices, while small, doesn’t tell the entire real estate story. Yun says every market is unique but that the recent decline in mortgage rates makes some U.S. housing markets a little more competitive.

"Conscious of changing mortgage rates, home buyers are taking advantage of any rate declines," Yun said. "Moreover, we're seeing stronger sales gains in areas where home prices are decreasing and the local economies are adding jobs."

Those markets would include San Francisco, San Diego, and Phoenix – among others. But even with price declines, these markets remain among the most expensive in the U.S. The median home price in the West last month was $541,100, down 5.6% from February 2022.

The median home price in the Midwest rose last month by 5% but that price – $261,200 – is the lowest in the nation.

Photo (c) Richard Jones/Science Photo Library - Getty Images

Hopes for a better spring housing market dimmed this week as mortgage interest rates, which had moderated since the first of the year, went up again last week.

The Mortgage Bankers Association (MBA) reports the rise in interest rates was so abrupt that it sent mortgage applications into a tailspin. New applications plunged 13.3% from the previous week.

 Joel Kan, MBA’s vice president and deputy chief economist, attributes the drop to rising rates, which make homes less affordable.

“Mortgage rates increased across all loan types last week, with the 30-year fixed rate jumping 23 basis points to 6.62% – the highest rate since November 2022,” Kan said. “The jump led to the purchase applications index decreasing 18% to its lowest level since 1995.” 

The nearly quarter-point rise in just seven days can be traced to rising rates on U.S. Treasury bonds. The rate on the Treasury’s 10-year bond, currently at 3.9%, has been rising amid inflation concerns. 

Bad timing

That rate has a direct impact on interest rates for mortgage loans. Kan says the increase comes at a bad time for the housing market.

“This time of the year is typically when purchase activity ramps up, but over the past two weeks, rates have increased significantly as financial markets digest data on inflation cooling at a slower pace than expected,” Kan said. “The increase in mortgage rates has put many homebuyers back on the sidelines once again, especially first-time homebuyers who are most sensitive to affordability challenges and the impact of higher rates.”

Homebuyers face another challenge in addition to rising interest rates. Home prices are still going up.

In fact, Zillow this week reported that heading into the spring season, home values are up 6% from a year ago and are 39% higher than in 2020. The big reason for that is the lack of available homes for sale. 

Zillow reports the number of homes for sale is the second-lowest on record — meaning stiff competition for well-priced homes.

In spite of a doubling of mortgage rates over the last 12 months, pricing millions of people out of the housing market, home prices have yet to crater. In fact, an industry report shows they’re still going up.

In its report on the fourth quarter of 2022, the National Association of Realtors (NAR) found average U.S. home values went up 4% compared to the fourth quarter of 2021 when mortgage rates were around 3%.

While that’s a smaller annual increase than the 8.6% rise in the third quarter, the median home value of $378,700 continues to put homeownership out of reach for many people. Home values have yet to fall except in a handful of housing markets.

Unfortunately, unless you are very affluent, that might not help much. According to the NAR report, San Francisco suffered the largest decline in median home values in the last quarter, with values falling 6.1%. However, even with the decline the median home value in that market is $1.23 million.

San Jose and Anaheim, Calif., have also seen home prices decline but the median home sale price is still north of $1 million.

Where prices are rising

Elsewhere, prices are still rising – especially in Florida. NAR reports the median home price in Sarasota is up 19.5% year-over-year. Prices are up 17.2% in Naples, 15.2% in Punta Gorda, and 14.5% in Daytona Beach.

But if fewer people are buying houses, how can prices keep going up? It’s a matter of supply and demand, according to NAR chief economist Lawrence Yun.

“Even with a projected reduction in home sales this year, prices are expected to remain stable in the vast majority of the markets due to extremely limited supply,” Yun said. “Moreover, there are signs that buyers are returning as mortgage rates decline, even with inventory levels near historic lows.”

Why most prices aren't falling

In short, new home construction has lagged behind demand for years. Now, with mortgage rates over 6%, current homeowners with low mortgage rates are less likely to plant a “for sale” sign in their front yard.

If there is any good news for would-be buyers it is this: even with double-digit price increases some attractive housing markets are still affordable. According to Redfin, January’s median home value in Myrtle Beach, S.C., was $270,500, well below the national median home price.

Meanwhile, buyers willing to wait a few months may be rewarded. As we recently reported,  Aaron Wagner, CEO of Development at Axia Partners and founder and managing partner at Wags Capital, believes home prices will begin to reset in the second quarter of this year, with some dramatic price reductions before the end of 2023.

A decline in the average mortgage rate last week brought a little hope to homebuyers but purchasing a home in this environment is still challenging. 

In its monthly report, the National Association of Realtors (NAR) said sales of existing homes fell for the eleventh straight month. Sales plunged 1.5% from November and were 34% lower than in December 2021.

“December was another difficult month for buyers, who continue to face limited inventory and high mortgage rates,” said NAR Chief Economist Lawrence Yun. “However, expect sales to pick up again soon since mortgage rates have markedly declined after peaking late last year.”

Last week the average 30-year fixed-rate mortgage was sharply lower but was 6.23% - still more than double than a year ago. 

Declining inventory is another challenge. Not only are there fewer choices for buyers, but it also is keeping prices from going down. In fact, NAR reports the median existing-home price for all housing types in December was $366,900, an increase of 2.3% from December 2021, with home prices rising in all areas of the country. It marks 130 consecutive months of year-over-year increases, the longest-running streak on record.

But there are still deals

That said, all real estate is local and varies from market to market. Where the market is softer – with more properties than buyers – Eddie Martini, the strategic real estate investment advisor at HouseCashin, says there are deals to be had.

“I have experienced buyers being able to close at below asking price, with closing credits as well as sellers buying down mortgage rates,” Martini recently told ConsumerAffairs.

According to NAR, total U.S. housing inventory at the end of December was 970,000 units. That’s a 13.4% drop from the previous month.

Despite the challenging conditions, first-time buyers were more active in the market in December than in November. NAR says first-time buyers accounted for 31% of sales, compared to 28% in November.

Maybe you have no intention of selling your home anytime soon so a decline in home prices is not a big concern. At the same time, the equity in your home probably makes up a big piece of your net worth.

The good news? The decline in home values has slowed from the summer months. But the bad news is that homeowners nationwide lost $1.3 trillion in home equity in the third quarter of this year, according to a report by Black Knight, a property data firm. It’s the largest quarterly dollar decline on record and the largest on a percentage basis since 2009.

“As we reported at the time, while hitting a record high in Q2, total homeowner equity peaked mid-quarter in May and has been pulling back ever since,” said  Ben Graboske, president of Data & Analytics at Black Knight. Equity among mortgaged properties is now down nearly $1.5 trillion since that point.”

For most homeowners who purchased their homes five or more years ago, the decline in values may not be all that concerning. But the report shows the number of mortgage holders who are now underwater more than doubled during that time. Still, Graboske says that’s hardly cause for alarm.

“It's important to note that -- even with 275 thousand falling underwater since May -- fewer than half a million homeowners owe more on their homes than their current values,” he said. Historically speaking, that is still extremely low.

Recent buyers are feeling the most pain

Most underwater borrowers purchased homes in 2020 and 2021, as prices were reaching record highs during the pandemic. Most obtained low fixed-rate mortgage rates, meaning their payments haven’t changed, even though they have lost equity.

Many housing experts say home prices are simply returning to earth after the massive increase since the start of the COVID-19 pandemic. According to the Federal Reserve, the U.S. median home value in the first quarter of 2019 was $313,000. In the third quarter of this year, it was $454,000.

Your home may not have lost much value at all, depending on where you live. Prices have suffered the sharpest declines in the nation’s most expensive markets. According to the Knock Buyer-Seller Market Index, homes in 98 of the 100 hottest housing markets have seen steep price declines. 

But the same report projects that homes in 13 U.S. housing markets are still rising in price. They include Winston-Salem, N.C., Fayetteville, Ark., and Seattle.

Consumers hoping home prices will fall enough for them to buy a house are seeing their wish come true. By one metric, prices fell from July to August at the fastest pace on record.

Make no mistake, prices are still sky-high. But the S&P CoreLogic Case-Shiller Indices, which tracks U.S. home prices, showed a 2.6% decline in annual home price appreciation when compared to the previous month.

The median home price in August was 13% higher than in August 2021. But July’s median price was 15.6% higher year-over-year. The 2.6% difference was the biggest one-month drop-off since the survey began 27 years ago.

The index breaks the country down by market size, with 10 and 20-city averages. Miami, Tampa, and Charlotte reported the highest year-over-year gains among the 20 cities in August. 

Prices fell the least in the South

Miami led the way with a 28.6% year-over-year price increase, followed by Tampa in second with a 28.0% increase, and Charlotte in third with a 21.3% increase. All 20 cities reported lower price increases in the year ending August 2022 versus the year ending July 2022. But that doesn’t mean it’s getting any easier to buy a home.

"Despite the ongoing deceleration, August's housing prices remain well above year-ago levels in all 20 cities,” said Craig Lazzara, managing director at S&P Dow Jones.  Florida continues to hold the top two spots, with Miami taking the lead over Tampa. Price growth continued strongest in the Southeast and South.

While a slowdown in prices helps, many would-be buyers face strong headwinds in the form of higher interest rates that have sharply reduced home affordability. The decline in home prices can be linked to higher mortgage rates that average more than 7%, more than double last year’s 3% average rate.

Home prices are dropping like a rock.  The most recent data from the Black Knight Home Price Index, a national measure of home prices, show the median home price declined in August for the second straight month.

But it’s the size of those price declines that’s worth noting. July and August's month-over-month declines mark the sharpest contractions seen in more than 13 years. Black Knight Data & Analytics President Ben Graboske says the market entered September with the median price down 2% just since the June peak.

"Only marginally better than July's revised 1.05% monthly decline, home prices were down an additional 0.98% in August,” Graboske said. “Either one of them would have been the largest single-month price decline since January 2009. Together they represent two straight months of significant pullbacks after more than two years of record-breaking growth.”

That is likely music to the ears of would-be home buyers who have been priced out of the housing market by high prices and mortgage rates that are approaching 7%. But celebrations may be premature.

Affordability is still falling

Even though home prices are falling from their all-time high, the experts at Black Knight say housing remains historically unaffordable, all because of rising mortgage rates. 

After improving slightly in July and early August, surging 30-year mortgage rates have pushed home affordability to its worst point in 38 years.

With rates at 6.7% as of Sept. 29, 38.2% of the median household income is needed to make the principal and interest (P&I) payment on the median-priced home purchase, the largest share since December 1984, when mortgage rates were at 13.2%. 

The monthly P&I payment on the median home is up $930 from the same time last year – a 73% increase. The situation is geographically widespread as well, with 84 of the 100 largest U.S. markets now at more than three-decade lows in terms of home affordability.

Black Knight also suggests there is a limit to how far home prices will fall, even in a rising interest rate environment. Analysts note inventory levels are still near historic lows as many sellers are now waiting for lower interest rates before listing their homes.

What about the huge inventory of unsold newly constructed homes? Won't those prices be slashed to the bone?

Yes and no. The Wall Street Journal reports some builders are offering entire subdivisions to investors at a discount. Those homes won’t be sold to owner occupants but will be maintained as single-family rentals.

When it comes to the economy, consumers have learned to distrust the phrase “But it’s different this time." However, when it comes to the housing market, many real estate professionals say the current market is unlike anything they’ve seen.

After a record runup in median home prices in 2020 and 2021, a surge in mortgage rates early this year has slammed the brakes on home sales, which is beginning to have an impact on prices.

Prices haven't backed down that much from their record highs but the rate of increase has moved into reverse. In its latest report this week, property data firm CoreLogic found the median U.S. home price posted a 0.3% decline from June to July. 

The 10-City and 20-City Composites, which measure prices in the nation’s top housing markets, both posted decreases of 0.8%. In July, only seven cities reported increases before and after seasonal adjustments.

Before potential home buyers start popping the champagne corks, consider this: Prices may have stopped going up but they are still very high compared to where they were at the beginning of the pandemic.

And the increase in the average 30-year fixed-rate mortgage interest rate from about 2.8% 12 months ago to today’s 6.7% rate has severely eroded affordability. However, there are beginning to be signs that if buyers are patient and willing to wait while the market corrects, there could be opportunities in the future.

64,000 canceled contracts

Real estate broker Redfin reports that nationwide, around 64,000 home-purchase agreements fell through in August, equal to 15.2% of homes that went under contract that month. That’s up from 12.1% a year earlier and is comparable with July’s revised rate of 15.5%.

That suggests the combination of high prices and high mortgage rates has caused buyers to have second thoughts. As these homes go back on the market, along with new inventory, prices could soften even more.

The Redfin report shows homebuyers were most likely to back out of deals in Sun Belt cities that surged in sales and price during the pandemic. The Phoenix, Tampa, and Las Vegas markets were among those seeing the highest numbers of canceled deals. 

“House hunters today are taking their time and exploring their options, whereas six months ago, they had to act quickly and pull out every stop to compete because homes were selling almost immediately,” said Tzahi Arbeli, a Redfin real estate agent in Las Vegas.

“Homebuyers now will agree to buy a house and be doing the inspection, and then back out because they found another home they love more.”

Interest rates are another story

But with the good news on prices comes the bad news on interest rates. Mortgage rates are still going up, not backing off from their recent highs. According to Fortune, the average mortgage rate is quickly closing in on 7%.

On a historical basis, 7% is not all that high. In the 1990s, when you could buy a nice house for $150,000, 7% was not a deal-breaker. However, when the house costs $400,000 or more, it’s a different story.

How long will buyers have to wait for lower mortgage rates? Maybe fewer than 12 months.

A recent report from Fannie Mae predicts mortgage rates will average 4.5% in 2023. In fact, the report suggests qualified buyers may be able to snag a 4.7% mortgage rate in the first quarter of next year.

The median U.S. home price declined slightly in July, the first time in years that prices have fallen. Black Knight, a housing data firm, reports the median home price fell 0.77% from June, the largest single-month decline since January 2011.

Over the last few months, Black Knight’s data shows prices were still rising but at a slower pace each month. The drop, while small, could be good news for buyers if the trend continues.

"Annual home price appreciation still came in at over 14%, but in a market characterized by as much volatility and rapid change as today's, such backward-looking metrics can be misleading as they can mask more current, pressing realities,” said Black Knight Data & Analytics President Ben Graboske. 

Graboske says the slowdown in the market has been showing up in the data over the last several months. He says that in January, prices rose at 28 times their normal monthly rate before slowing to five times average in February. That, he notes, was when interest rates began to move higher.

“Even May was still about two times normal before June growth came in 70% below the long-run average,” he said. “Without timely, granular data, market-moving trends don't become apparent until they're right in front of you – like a sudden shift to the largest single-month decline in home prices in more than a decade.”

Embracing renting

Rising interest rates have simply made today’s expensive homes unaffordable for many Americans. Rather than buy a small, entry-level home they will quickly outgrow, real estate expert Kurt Carlton, president of investor support firm New Western, says many younger consumers have embraced renting as a way to obtain more living space.

“(The) desire for rental homes has increased as millennials are having children and seeking flexibility,” Carlton told ConsumerAffairs. “This demand vacuum has drawn in institutions who have continued to standardize the single-family rental market.

According to the Black Knight report, prices are not easing in a uniform pattern, with price cuts occurring most frequently in the most expensive markets.

But the report shows that more than 85% of the 50 largest U.S. markets are at least marginally off their peak prices through July, with home prices down by less than 1% in a third of the market, and more than one in 10 seeing prices fall by 4% or more.

In another sign of a softening housing market, real estate broker Redfin reports the typical home sold in August at a price that was less than the listing price.

That’s a sharp reversal from 2021 when homes in many areas sold for well above the asking price and would-be buyers engaged in bidding wars. It’s the first time in over 17 months that a typical seller has accepted less than the list price.

Redfin reports the home price surge began in March 2021, as the market produced an average sale-to-list ratio of over 100%, meaning that the average home has sold for more than its final asking price, after all price reductions. 

While the decline in prices is good news for buyers, Redfin says there has been no rush to take advantage of it. Mortgage purchase applications and pending sales are both lower compared to 12 months ago.

The market may continue to slow

"While the cooldown appears to be tapering off, there are signs that there is more room for the market to ease," said Redfin Chief Economist Daryl Fairweather. "The post-Labor Day slowdown will likely be a little more intense this year than in previous years when the market was super tight.”

Fairweather expects homes to stay on the market for longer than they did in 2021 when some homes went under contract within hours of their listing. She says that could be a sign that home prices will continue to drift lower.

“Homebuyers’ budgets are increasingly stretched thin by rising rates and ongoing inflation, so sellers need to make their homes and their prices attractive to get buyers’ attention during this busy time of year,” Fairweather said.

Rising mortgage rates have reduced home affordability, raising the cost of a monthly mortgage. For the week ending September 1, the average 30-year mortgage rate rose to 5.66%. In January, the average mortgage rate was just 3.22%.

Waiting for a bargain may take a while

It remains to be seen just how quickly home prices will fall. Buyers hoping for a large adjustment may have a long wait or be prepared to buy in the nation’s most expensive housing markets. By all indications, prices are falling fastest in markets where they went up the fastest.

In some markets, prices are rising, albeit at a much slower pace. Redfin’s median home sale price in August was $370,000, up 6% year over year. 

Prices have declined 6% from the record high of $393,725 hit during the four-week period ending June 19. A year ago, they rose 0.4% during the same period.

Only three metro areas in the Redfin survey saw a year-over-year decline in their median home-sale price: Honolulu, Oakland, and San Francisco, where median sale prices were between $600,000 and $1.4 million. 

When the COVID-19 pandemic introduced widespread remote work, people took advantage of that to find larger and more affordable homes, often in other states. Now that rising mortgage rates have made many housing markets even less affordable, evidence suggests that Americans are on the move once again.

Kristina Morales, Realtor at eXp Realty in New York, said she saw people migrating to more affordable markets early in the pandemic, and she doesn’t think that’s going to end anytime soon.

“I actually think with rising interest rates and inflation, we may see this increase,” Morales told ConsumerAffairs. “As long as people are able to continue to work remotely, this gives them flexibility on where they live. Areas with more affordable housing markets will certainly attract these people.”

The 10 most affordable large cities

Employees who are able to work from just about everywhere would do well to consider less expensive cities where home prices remain well below the national median. The ConsumerAffairs Research Team has crunched Census Bureau numbers on America’s most affordable cities with a population of at least 500,000. We identified the most expensive housing markets as well as the least expensive.

We ranked major U.S. cities based exclusively on how much residents spend each month on their housing, whether they own or rent their homes, arriving at a monthly “median housing cost.” 

We arrived at that number based on multiyear census estimates covering monthly housing costs for residents—spending on mortgages, rent, real estate taxes, property insurance, utilities, and other recurring housing expenses.

Here are the top 10 most affordable big cities:

1. Detroit

2. El Paso

3. Memphis

4. Milwaukee

5. Tuscon

6. Louisville

7. Indianapolis

8. Oklahoma City

9. Albuquerque

10. San Antonio

Detroit

Population: 672,351 

Median housing cost: $734

Median home value: $52,700

Median rent: $850

Once a major industrial center, Detroit is now part of the Rust Belt. However, the city has spent the last few years redefining itself. National Geographic recently reported that “Detroit is Cool Again.” It attributes the city’s rebound to energetic leadership, both among elected officials and citizens.

Detroit native Dan Gilbert, who founded Quicken Loans, moved his company to Detroit. He bought dozens of properties for rehab, fueled dozens of start-ups, and employs more than 12,000 people.

The city offers several neighborhoods with homes priced below the national median. For sports fans, Detroit has Major League Baseball, NFL, and NBA franchises.

El Paso

Population: 679,879

Median housing cost: $877

Median home value: $132,800

Median rent: $857

El Paso, Texas, which is located on the U.S./Mexico border, is America’s 23rd largest city, but it ranks second in affordability. The City of El Paso’s emphasis on the formation of neighborhood associations has resulted in strong communities and active citizens.

Jobs are plentiful, especially in energy production and health care. El Paso is home to Marathon Petroleum and the Medical Center of the Americas, the only medical research and care provider in West Texas. 

The University of Texas at El Paso has an enrollment of more than 23,000 and offers 169 bachelor’s, master’s, and doctoral programs in 10 colleges and schools. 

Memphis

Population: 650,910

Median housing cost: $913

Median home value: $107,100

Median rent: $915

Memphis’ status as an affordable housing market is underscored by one statistic: Realtor.com reports that the Tennessee city on the Mississippi River is the nation’s number one housing market, where first-time buyers are competing with investors for the best homes.

Besides affordable housing, Memphis boasts a strengthening job market. It’s the home of Fed Ex, Auto Zone, and International Paper. It’s ranked number one in the nation by Bloomberg for job creation when compared to the average area employment rate over the past 10 years.

Culturally, Beale Street celebrates the blues, while Elvis Presley’s Graceland draws rock music fans from around the world. In fact, music is an important force in a city considered by many to be the birthplace of rock and roll.

Milwaukee

Population: 592,649

Median housing cost: $906

Median home value: $128,300

Median rent: $866

Milwaukee’s affordable housing market has drawn lots of interest since the COVID-19 pandemic. Despite strong sales activity, the market still remains within reach for many people who have been priced out of larger, more expensive cities. However, buyers may face more competition here than in the other markets on our list.

Milwaukee is the largest city in Wisconsin and sits on the western shore of Lake Michigan. It’s less than a two-hour drive from Chicago, where homes go for a lot more. The city’s health care facilities include two major hospitals –St. Luke’s Medical Center and the Wisconsin Heart Hospital – as well as Ronald McDonald House.

Milwaukee entered 2022 with a robust job market. According to the Metropolitan Milwaukee Association of Commerce (MMAC), the manufacturing sector is particularly strong and has increased the number of jobs to well above pre-pandemic levels.

Tucson

Population: 545,340

Median housing cost: $890

Median home value: $165,900

Median rent: $861

Tucson is ranked by Realtor.com as one of the nation’s hottest housing markets, but it has been able to retain its affordability. It’s Arizona’s second-largest city behind Phoenix, which is one of the nation’s more expensive places to live. Tucson has attracted remote workers from all over the country with a near-perfect climate and high quality of life.

The city boasts a strong economy that has a diverse blend of private and public business sectors, including education, aerospace, biotech, defense, information technology, and international trade. Tucson is home to the University of Arizona, which is ranked among the top 20 public research universities nationwide.

While homes in the Tucson metro are affordable now, buyers should prepare for some stiff competition. According to the Tucson Business Journal, bidding wars in 2022 have increased faster than in Pheonix, where rising mortgage rates have slowed sales. People considering a move to Tucson shouldn’t wait too long, as market conditions could change quickly.

Louisville

Population: 618,733

Median housing cost: $929

Median home value: $165,400

Median rent: $878

Louisville is the largest city in Kentucky and sits along the Ohio River. It’s connected to Cincinnati via I-71 and to Nashville and Indianapolis by I-65. It includes aspects of both the South and Midwest and offers plenty of Southern charm. Home to the Kentucky Derby, it exudes a graceful way of life and a very affordable housing market. In fact, WalletHub recently named it one of the top cities for renters.

Jobs are plentiful at major employers like Papa John’s Pizza, UPS, KFC, Louisville Slugger, and Brown Forman distillery. Ford Motor Company operates a large assembly plant in the city.

Pandemic buying pushed home prices higher, but there are still plenty of affordable homes. Homes sell quickly, but Redfin reports that Louisville home sales are recently down nearly 6%, offering an opportunity for buyers.

Indianapolis

Population: 869,387

Median housing cost: $939

Median home value: $145,200

Median rent: $911

Although Indianapolis is on our list of affordable housing markets, prices in the capital of Indiana are rising. Redfin reports that prices were up nearly 14% in June. That said, its median home value is the lowest of any city on our list.

To find the cities with the best deals, it sometimes pays to follow the investors. HousingWire has reported that Indianapolis has drawn the most attention from out-of-state investors, who are scooping up single-family homes and converting them to rental properties.

Indianapolis has a strong job market and is home to a number of major health care employers, including pharmaceutical manufacturer Eli Lilly, Anthem, and Community Health Network. On the industrial side, it's also home to Cummins.

Oklahoma City

Population: 649,821

Median housing cost: $937

Median home value: $161,800

Median rent: $884

Oklahoma City is yet another housing market that’s attracting attention from investors. For that reason alone, it might be enough for a first-time buyer to check it out. Other reasons include the strong economy and job market.

The energy industry is a major player, with OGE Energy, Love’s Travel Stops, Chesapeake Energy, and Sandridge Energy based there. In addition, Baker Hughes has a strong presence. But the economy is not a one-trick pony, as Oklahoma City is home to a diverse assortment of enterprises in aviation and aerospace, bioscience, and financial services.

The Oklahoma City Museum of Art is a cornerstone of the city’s cultural landscape, while the Bricktown Entertainment District is a major part of its revitalized downtown area. 

Albuquerque

Population: 560,447

Median housing cost: $968

Median home value: $204,100

Median rent: $889

Albuquerque remains a very competitive housing market, but fortunately for buyers who are willing to move, home prices are considerably lower than in many other metropolitan areas. Albuquerque is the largest city in New Mexico and is the center of business and economic activity.

Albuquerque is another affordable city that offers plenty of jobs in health care. In recent years, it has also added high-tech manufacturing capacity. The state and federal governments are also major employers.

Now may be a good time to go house hunting in Albuquerque and its surrounding areas. KRQE-TV recently reported that the red-hot pace of home sales has slowed considerably. Local realtor Jesse Garcia told the station that the market is experiencing a slowdown, with a higher supply of homes on the market but less demand.

San Antonio

Population: 1,529,133

Median housing cost: $1,012

Median home value: $156,700

Median rent: $1,025

San Antonio is the only city on our list with a population of over 1 million, putting it in the top 10 U.S. metro areas. But despite its size, it is still affordable, with a median home value of $156,700. In fact, the National Association of Realtors (NAR) ranked San Antonio as one of the nation’s “hidden gems” when it comes to real estate.

The city is located in South Central Texas, about a one-hour drive from Austin and three hours from Houston. It’s home to the Alamo and was a Spanish colonial outpost dating back to 1718.

It offers a diverse economy with an especially strong job market. Industries include health care, the military, financial services, and energy. The city has won praise for its quality of life and rich Hispanic heritage. 

Opportunity for remote workers

Bob Bilbruck, CEO at Captjur, says these 10 housing markets, and others like them, will see more activity in the months ahead. He says it might be wise for people who can work remotely to consider a move.

“The migration to more fluid markets will keep happening as these areas are pro-growth and have less regulatory hurdles for people to build new homes or for builders to build new homes and sell to these people,” Bilbruck said.

Jeb Smith, a broker at Coldwell Banker Realty in Huntington Beach, Calif., says today’s real estate market is shifting back to more “normal” times, reducing the demand for homes and eliminating some of the competition. He says that can create opportunities for buyers, especially in America’s more affordable housing markets.

The housing market entered a recession in July. That's bad news for people who are planning to sell their homes, but it's some long-anticipated good news for would-be buyers. Sales of existing homes fell for a sixth straight month, declining by 5.9% from June. They're down more than 20% from July 2021.

The median sale price dropped by $10,000 in one month, declining to $403,800. In the previous five months of declining home sales, the median price kept rising to a record $413,800 in June.

"The ongoing sales decline reflects the impact of the mortgage rate peak of 6% in early June," said NAR Chief Economist Lawrence Yun. "Home sales may soon stabilize since mortgage rates have fallen to near 5%, thereby giving an additional boost of purchasing power to home buyers."

There was more good news for people who want to buy a home. Total housing inventory at the end of July was 1,310,000 units, an increase of 4.8% from June and unchanged from the previous year. That’s still historically low, but at least it’s moving toward a more balanced market. Unsold inventory sits at a 3.3-month supply at the current sales pace, up from 2.9 months in June and 2.6 months in July 2021.

Getting back to normal

Jeb Smith, a Coldwell Banker agent in Huntington Beach, Calif., says the housing market has been moving back to more normal inventory levels for the last couple of months.

“That means buyers are having to do less of the crazy stuff they were having to do during the pandemic to get their offer accepted,” Smith told ConsumerAffairs. “On top of the shift due to rates, we are now past the busiest point in real estate, the spring selling season, which means that demand should continue to decline due to the time of year giving homebuyers more opportunities with less competition and more homes to choose from as we transition through the rest of 2022.”

Despite the slowdown in sales and the drop in prices, the housing market appears to be remaining healthy for now. Distressed sales – foreclosures and short sales – represented approximately 1% of sales in July, which is essentially unchanged from June 2022, and July 2021.

People who were selling their homes had little difficulty doing so in July. Homes typically remained on the market for 14 days in July, the same as in June and down from 17 days in July 2021.  In fact, the 14 days on market are the fewest since NAR began tracking that stat in May 2011. 

Eighty-two percent of homes sold in July 2022 were on the market for less than a month.

Rising mortgage rates and falling home sales failed to bring down home prices in the second quarter, according to a new report from the National Association of Realtors (NAR). In fact, four out of five of the largest metro areas recorded year-over-year double-digit price increases.

On a nationwide basis, the NAR puts the median price of a single-family home at $413,000, a 14.2% increase over the second quarter of 2021. NAR Chief Economist Lawrence Yun worries that these types of gains are pricing millions out of the housing market.

"Home prices have increased at a pace that far exceeds wage gains, especially for low- and middle-income workers," Yun said. 

Sales and prices increase most in South

Homes in the South led the nation, both in sales and price increases. The report found that 44% of second-quarter home sales occurred in southern states, and prices rose 18.2%. 

Florida was a major contributor to the South’s numbers. The 10 largest metro areas recorded price appreciation of at least 25%, and seven of those markets are in the Sunshine State.

Lakeland-Winter Haven home prices were up 31.4% in 12 months. Home prices were up 28.9% in Naples-Immokalee-Marco Island; North Port-Sarasota-Bradenton recorded a 28.8% increase; Tampa-St. Petersburg-Clearwater posted a 28.0% price increase; and Cape Coral-Fort Myers home prices increased by 27.8%.

In comparison, prices increased by 12.7% in the West, 10.1% in the Northeast, and 9.7% in the Midwest.

Barriers to home ownership

Yun said the local job market performance and supply availability are two factors that are driving local home price growth. 

"Job growth is positive and should be applauded, but supply restraints are creating unnecessary barriers to ownership opportunities," he noted.

Mortgage rates present another barrier. When rates were around 3%, more people could afford the monthly payments on homes at these prices. According to Bankrate.com, the average 30-year fixed-rate mortgage this week is 5.56%, up from 5.43% last week.

Because of high prices and rising rates, the NAR reports that housing affordability tumbled in the second quarter of 2022. The monthly mortgage payment on a typical existing single-family home with a 20% down payment jumped to $1,841. That's an increase of $444 – or 32% – from the first quarter of this year and a bump of $612 – or 50% – from one year ago. 

With inflation running at 8.5% and pushing up the cost of nearly everything in the economy, it has become even harder to afford a mortgage. According to the NAR report, families typically spent 24.3% of their income on mortgage payments in the second quarter. That's up from 18.7% the prior quarter and 16.9% one year ago.

People who are shopping for homes are finally seeing lower prices. In market after market, real estate agents report that sellers are beginning to cut their list price if they haven’t received an offer after a few weeks.

As buyers disappeared in June in the face of record-high prices and rising mortgage rates, the market cooled considerably. Instead of selling in a few hours, homes in many neighborhoods have lingered on the market for weeks.

In a normal housing market, taking a few weeks (or even a month or two) to receive an offer is not unusual. But over the last two years, when millions of people who had been renting suddenly decided to buy a home, the market has been anything but normal. Rock-bottom mortgage rates helped to fuel the home-buying frenzy.

Throughout 2021, there were reports of bidding wars driving up asking prices by tens of thousands of dollars. Buyers were signing contracts on properties without an in-person visit and waiving contingencies. Real estate professionals say those days are now over.

June was the turning point

Bloomberg reports that the market began to quickly change in June, when the sale of existing homes fell for a fifth straight month, declining 5.4%. With fewer buyers, sellers began to cut prices, especially in the previously red-hot markets of Las Vegas, Denver, Austin, Nashville, Tampa, and Sacramento. The trend likely picked up speed in July.

“The market we have now is similar to the market at the beginning of the pandemic because that market created uncertainty and, for many, anxiety,” Kathleen Murphy, associate broker at Boston’s Gibson Sotheby's International Realty, told ConsumerAffairs. “The difference is consumers are uncertain about the increasing mortgage rates and out-of-control inflation and less about vaccine availability and hospitalization.

Daryl Fairweather, chief economist at Redfin, told the Wall Street Journal that she advises sellers to embrace the new housing market reality and price their homes conservatively from the start. If there are no offers after two weeks on the market, she advises sellers to reduce the price again by 8% or 10%.

Increasing inventory could push prices down even more

Many real estate experts say homeowners who have not put their homes on the market yet have missed the top of the market as far as prices are concerned. The Biden administration recently took steps to put even more downward pressure on home prices by increasing inventory. 

The Treasury Department is allowing local governments to deploy $350 million in unspent American Rescue Plan funds to develop and repair affordable housing units to get them into the nation’s housing inventory.

"Any effort to add supply will help alleviate a historic shortage in affordable housing,” said Leslie Rouda Smith, president of the National Association of Realtors (NAR). “NAR commissioned a landmark research report last year showing a lack of 5.5 million homes in the U.S.—a gap so large it would take more than a decade to dig out of, even with accelerated new construction.  It is nothing short of an affordability crisis hurting first-time, first-generation, and middle-income Americans the most.”

Smith said the NAR supports “comprehensive action” that encourages investment in new construction, zoning reforms, expansion of financing, and tax incentives to spur investment in housing and convert unused commercial space to residential – all of which would increase the number of available homes and bring down prices.

There’s a bit of good news for people who are hoping to buy a home. The rate at which prices are rising slowed dramatically in June, according to housing data firm Black Knight.

Home prices are already at a record high, and rising mortgage rates have put monthly house payments out of reach for millions of Americans. There were fewer buyers in June as a result, and price gains slowed at the fastest rate on record.

The numbers show that year-over-year home price appreciation fell by 2% in June to 17.3%. Even during the housing market crash of 2008-09, prices didn’t slow by more than 1.9% from one month to another.

At the same time, prices are still going up. That’s because the housing market is so out of balance that there are still more people willing and able to purchase a home than there are houses for sale.

Black Knight reports that 25% of major U.S. housing markets saw growth slow by 3% in June. Four markets experienced a 4% or more slowdown. Even so, industry experts say it’s hard to say whether the market is moving in a direction that favors buyers.

“The market is showing signs of an inflection point with supply and days on the market ticking up in some areas,” Michael Gifford, CEO and co-founder of Splitero, told ConsumerAffairs. “With that said, we have been far from a normalized market since the pandemic's start, so change doesn't necessarily mean we are at an inflection point.”

Most expensive markets lost the most value

According to Black Knight data, the markets seeing the biggest slowdown in rising prices are the most expensive housing markets. For example, average home values in San Jose, Calif., fell by 5.1% from the first of May to the end of June.

Home prices have also declined in Seattle, San Francisco, San Diego, and Denver but are still well above the national median. In more encouraging news for buyers, Black Knight found that the supply of available homes increased in June.

However, while inventory increased by 22% during May and June, inventory levels are still 54% lower than from 2017 to 2019, just before the start of the pandemic.

Home foreclosures fell to record lows during the pandemic, but that appears to be reversing slightly. Black Knight reports foreclosure starts rose 27% in June but were 40% below pre-pandemic levels.

With rising mortgage rates cutting into home affordability, sales of existing homes fell in June for the fifth straight month. But despite the decline, the median price of a home hit another record high.

The National Association of Realtors (NAR) reports that sales of all types of existing homes fell by 5.4% from May and were 14.2% lower than in June 2021.

"Falling housing affordability continues to take a toll on potential home buyers," said NAR Chief Economist Lawrence Yun. "Both mortgage rates and home prices have risen too sharply in a short span of time."

Despite the lack of buyers, sellers were able to get their asking price and more. NAR data shows that the median home sale price in June was $416,000. It was $406,000 in May and $366,900 in June 2021.

An average of 14 days on the market

Even though sales were down, homes spent less time on the market. In fact, the NAR said the average home spent only 14 days on the market last month – the shortest time since the organization began keeping records.

With fewer sales last month, there are slightly more homes now on the market. The inventory of available homes, which has been constrained for at least five years, increased to a three-month supply.

"Finally, there are more homes on the market," Yun said. "Interestingly though, the record-low pace of days on market implies a fuzzier picture on home prices. Homes priced right are selling very quickly, but homes priced too high are deterring prospective buyers."

First-time buyers accounted for 30% of sales in June, an increase from 27% in May and down from 31% in June 2021. The NAR's 2021 Profile of Home Buyers and Sellers – released in late 2021 – reported that the annual share of first-time buyers was 34%.

All-cash sales – which usually means the buyer was an investor – accounted for 25% of June sales, the same share as in May and up from 23% in June 2021.

The housing market is shifting

Kathleen Murphy, an associate broker at Gibson Sotheby's International Realty in Boston, says the real estate market is at an inflection point.

“The market we have now is similar to the market at the beginning of the pandemic because that market created uncertainty and, for many, anxiety,” Murphy told ConsumerAffairs. “The difference is now consumers are uncertain about the increasing mortgage rates and out of control inflation and less about vaccine availability and hospitalization.”

Yun agrees that inflation is a wild card. If inflation continues on its current path, he says mortgage rates – now hovering just below 6% – will continue to rise.

"Rates will stabilize only when signs of peak inflation appear,” Yun said. "If inflation is contained, then mortgage rates may even decline somewhat."

Many Americans who could afford a home purchase a year ago no longer can. The average home price has surged over the last 12 months, with the average mortgage rate nearly doubling since January.

In its latest report, the National Association of Realtors (NAR) put home affordability at its lowest level since 2006, the peak year of the housing bubble. The organization said its housing affordability index fell to 102.5 in May, the lowest since it hit 100.5 in July 2006. The affordability index incorporates median existing-home prices, median family incomes, and average mortgage rates.

With fewer people able to afford homes, what will that do to the housing market? Will sales fall and pull down record-high prices at the same time? ConsumerAffairs asked a number of industry experts to weigh in on those questions, and as you’ll see, there is no clear consensus.

Not much change

Glenn Phillips, CEO of Lake Homes Realty in Birmingham, Ala., doesn’t expect a significant adjustment to the housing market.

“The demand for homes has so greatly exceeded available homes for sale, there will still be more buyers than sellers in the coming months, and even through 2023 and 2024,” he told us. “There is not sufficient new home construction to completely balance the market, even with increases in mortgage rates.”

But in the New York City housing market, Mike Biryla, a real estate agent at Triplemint, is already seeing signs of a market slowdown, with fewer buyers willing or able to take on today’s much higher mortgage payments.

“My prediction for home prices through 2022 will be a continuation of a market correction,” Biryla said. “The Fed’s intentionally increasing the interest rates to cool down the housing market is a much different scenario than the 2008 financial crisis, and even with the interest rates potentially climbing even more through 2022, lenders have been more careful and will likely see fewer foreclosures.”

So, the decline in home prices should be more orderly than it was more than a decade ago. Biryla expects that home prices will continue to depreciate as interest rates climb and inventory increases.

Shmuel Shayowitz, president and chief lending officer at Approved Funding, agrees that the housing market will respond to the Fed’s actions. In fact, he says the Fed is specifically targeting the housing market as a chief source of inflation.

“Their action will and is slowing the housing market and will soften prices,” Shayowitz told ConsumerAffairs. “This however will not lead to a market crash in housing and will likely cause a correction of 0% to 5% at worse.”

“I do not expect widespread price reductions as it varies by market and neighborhood,” Michael Gifford, CEO & co-founder of Splitero, told us.”Price reductions usually happen when sellers have a high price expectation, demand drops, or the seller is very motivated to sell. In this market, seller motivation is still low because relocating is difficult.” 

With declining affordability, Ran Eliasaf, founder and managing partner of Northwind Group in New York, is already seeing a drop in demand for homes. He says there have been fewer offers and not as many showings lately, but tight inventory levels will continue to favor sellers.

“Overall there is still a housing shortage across the U.S.,” he said. “This shortage will help initially keep pricing levels at their current status. However, a continued rise in interest rates, coupled with stagnation in wage increases will have a negative effect on the housing market, with many potential buyers opting to rent as the cost of rent will be lower than the cost of ownership.”

In fact, Sissy Lappin, co-founder of ListingDoor, says the decline in the number of buyers probably won’t affect the market all that much. She predicts that higher interest rates will also result in fewer sellers and that current homeowners won’t want to give up their low mortgage rates.

“Think about it; 90%, or nine out of 10 mortgages, have an interest rate below 5%,” she told ConsumerAffairs. “This means that instead of jettisoning that mortgage, they will stay put.”

The housing market remains a bundle of contradictions as prices rise and sales decline. For the first time ever, the median home price hit $400,000 in May, as Zillow reports home affordability fell to a 15-year low.

The National Association of Realtors (NAR) reports that existing-home sales declined in May for the fourth straight month, falling 3.4% from April. Over the last 12 months, sales have declined by 8.6%.

At the same time, buyers continue to pay more for homes. In May, the NAR found that the median home price for all types of dwellings, including condos, was a record $407,600, 14.8% higher than in May 2021. Prices increased in all regions of the country.

‘Purchase power has dwindled’

Not surprisingly, Zillow found that more Americans are being priced out of the housing market. A bigger factor than the listing price is the cost of borrowing money.

"Mortgage rates took an unprecedented leap skyward over the past two weeks and quickly multiplied housing costs as they rose," said Zillow economist Nicole Bachaud. "We are already seeing signs of waning demand, and expect these recent rate hikes to quicken the market's needed rebalancing. While shoppers will likely experience less competition for homes than the frenzied recent months, their purchasing power has dwindled." 

That’s because incomes are not keeping up with rising monthly payments, which are influenced by a combination of elevated home prices and higher mortgage rates. Inflation is cutting into incomes even more.

According to Zillow, monthly house payments are taking about 28% of homeowners' monthly income, which is dangerously close to the recommended 30% threshold.

Six months ago, a home buyer with good credit could get a mortgage rate of about 3%. But mortgage rates have shot up in early June, averaging 5.78% as of Thursday, according to Zillow. A new purchase of a typical U.S. home at that rate would mean monthly mortgage payments of $2,127. That's more than 50% higher than 12 months ago.

Not enough homes for sale

The lack of available homes for sale is a major reason that home prices continue to rise, even as sales decline. The NAR reports that total housing inventory at the end of May experienced a sharp increase from April but was down 4.1% from May 2021.

Lawrence Yun, the NAR’s chief economist, says sales appear lower in comparison to the last two years but are actually returning to pre-pandemic levels.

"Also, the market movements of single-family and condominium sales are nearly equal, possibly implying that the preference towards suburban living over city life that had been present over the past two years is fading with a return to pre-pandemic conditions," he said.

The average 30-year fixed-rate mortgage continues to climb above 5% making it more difficult for buyers to qualify for loans at current prices. In its latest update, Freddie Mac set the average interest rate on that popular mortgage at 5.27%. Five months ago it was around 3%.

But Michael Gifford, CEO & co-founder of Splitero, a home-seller resource, doesn’t expect to see a price dip – at least not in the near term.

“The real estate market is starving for inventory and has significant pent-up demand,” Gifford told ConsumerAffairs. “We are unlikely to see home price appreciation slow with a single factor like interest rates. Inflation, affordability, interest rates, supply, and other factors will likely need to combine over the course of the year to stop rising prices.”

Gifford says his company operates in many markets where homes are still selling within days or even hours of going on the market.

No slowdown

The National Association of Realtors (NAR) recently issued a report that suggests there hasn’t been much of a slowdown in rising prices so far this year. The report found that 70% of 185 measured metros experienced double-digit price gains in the first quarter, up from 66% in the fourth quarter of 2021.

Tom LaSalvia, the senior economist at Moody’s Analytics, says demand for homes, even at a higher mortgage rate, may actually be increasing because rates are going up. He says it can create a “fear of missing out” mindset.

“This only intensifies in an environment when interest rates are expected to rise -- buyers want to get something before their rate lock expires,” he told us. “While many of these purchases work out, some will lead to regret. There is already anecdotal and survey evidence of this during this moment in time.”

On the other hand, LaSalvia says some people will look at rising rates and the resulting higher monthly house payments and decide to put off their purchase, cooling down the red-hot housing market.

But some markets are seeing price cuts

Mayer Dallal, the managing director of mortgage lender MBANC, says his company is already seeing price reductions in New York, Los Angeles, Dallas, and some other major housing markets. That, he says, could be an opportunity for savvy buyers.

“Sellers know mortgage rates are rising, which might scare off buyers, but they still want to sell, so they're willing to compromise,” Dallal said. “Remember, asking prices aren't based on any scientific instruments. It's often about perception. If your neighbor got a high, over-asking-price offer during the height of the frenzy, then you might ask for a similar price -- not because that price reflects any objective reality.”

Dallal says the housing market is cooling from the peak frenzy of a few months ago and an economic slowdown could give buyers a little more bargaining power.

If you'd like to learn more about all the factors that determine how mortgage rates are calculated, check out ConsumerAffairs' resource here.

Home prices may level off as mortgage rates rise, but prices were still climbing in February. The S&P CoreLogic Case-Shiller U.S. National Home Price Index shows that the median home price jumped 19.8% year-over-year in February, up from 19.1% the previous month. 

Phoenix, Tampa, and Miami reported the highest year-over-year gains among the 20 largest markets. The median home price in Phoenix was nearly 33% higher, with prices in Tampa rising nearly as much. The median price of a Miami home gained almost 30%.

All 20 cities reported higher price increases in the year ending February 2022, versus the year ending January 2022. Even when compared to January, February home prices were higher. Nationwide, home prices gained 1.7% from January to February.

"U.S. home prices continued to advance at a very rapid pace in February," said Craig Lazzara, managing director at S&P DJI. "The National Composite Index recorded a gain of 19.8% for the 12 months ended February 2022; the 10- and 20-City Composites rose 18.6% and 20.2%, respectively. All three composites reflect an acceleration of price growth relative to January's level.”

Is it sustainable?

The big question is whether the market can sustain that kind of increase in home values. Not only have prices reached record levels, but interest rates have also moved above 5%; that's 2% higher than they were at the end of 2021.

As we recently reported, the average monthly house payment in April was 20% higher than the average payment for homes purchased in December. Some buyers have moved toward adjustable-rate mortgages (ARMs) to make the monthly payment affordable, which some real estate experts have described as risky in uncertain economic times. In fact, the Mortgage Bankers Association reported Wednesday that applications for ARMs last week doubled the number seen three months ago.

“An ARM is harder to budget for in the long run because the monthly payments might go up when the loan reaches its adjustment period,” Holden Lewis, home and market insights expert at NerdWallet, told ConsumerAffairs.

An ARM might start out at a lower rate but will go up when interest rates rise. The Federal Reserve has strongly signaled that it will continue to raise interest rates through the end of this year.

Housing economists report signs that the housing market is already weakening as it begins what is ordinarily its busiest time of the year. They attribute softer sales to qualification issues, rising cancellations, and increased buyer hesitancy.

Home prices are still rising, and mortgage rates crossed 5% for the first time in years last week. But what does that actually mean for people buying a home this month?

A new report from Zillow shows that the average monthly house payment has increased 20% since December, just over three months ago. Despite this, the pace and volume of sales picked up in March, showing the depth of the pool of homebuyers willing and able to meet current asking prices. 

The report underscores the challenges facing consumers who are trying to purchase a home this spring. The typical home is valued 20% more than it was 12 months ago. The average mortgage rate has risen from below 3% a year ago to a little over 5% now.

‘Breathtaking speed’

Doing the math, Zillow estimates that the average monthly payment is now 38% more than it was at this time in 2021 – and that assumes a 30-year mortgage with a 20% down payment.

"Higher mortgage rates were anticipated this year, but the speed of their rise has been breathtaking," said Jeff Tucker, Zillow’s senior economist. "Record low mortgage rates had been an affordability lifeline during the pandemic, keeping monthly payments in check even while prices climbed quickly.”

An analysis of ConsumerAffairs reviews shows that many people were already struggling to make house payments, even before rates rose and inflation took off. Teresa of Noblesville, Ind., turned to AAG for help.

“I’ve been making house payments, but I’ve been struggling making them,” Teresa wrote in a ConsumerAffairs review.

Hillary, of Rio Ranco, N.M., found herself in a similar situation recently and got some assistance from Freedom Debt Relief, which she said helped her reduce her debt.

“I was still able to live with on my means and pay my house payment and put food on the table,” she told us.

Biggest test yet

With the cost of purchasing and financing a home rising so quickly, Tucker said March was the biggest test yet of whether enough buyers can meet the new asking prices to keep home values growing at a record pace. So far, he says the answer is yes.

“There will be a point when the cost of buying a home deters enough buyers to bring price growth back down to Earth, but for now, there is plenty of fuel in the tank as home shopping season kicks into gear," Tucker said.

If there was a bright spot in the report, it might have been increasing choices. After six consecutive months of falling inventory — a streak that lasted longer than usual into the year — the number of available homes in March rose 11.6% over February, the largest one-month jump in Zillow's records.

Mortgage rates are measured in different ways by different organizations, but one thing seems fairly certain. The average interest rate on a loan to purchase a home is headed toward 5%.

The reason for the rapid rise in mortgage rates, which were well below 4% in late February, can be tied to a rise in the yield on the 10-year Treasury bond. That rate consistently stayed below 1% during the pandemic, keeping mortgage rates at record lows.

This week, the yield on the 10-year bond is roughly 2.5%. Bond yields rise when there are fewer investors who want to buy them. The Treasury Department increases the interest rate to attract more buyers.

So, what’s that mean for the housing market? Home prices are at record highs, but if fewer people can qualify for a mortgage at a higher interest rate, then that means fewer homes will be sold.

It’s not normal

Housing experts say fewer homes tend to sell under these conditions, but nearly everyone we consulted pointed out that these are not normal circumstances because of the shortage of available homes. Michael Gifford, the CEO & co-founder of fintech firm Splitero, says prospective buyers should not expect prices to go down.

“Nominal interest rate increases will deter some buyers, but the demand from lack of inventory over the last few years is still driving home price appreciation,” Gifford told ConsumerAffairs. “We operate in many markets where homes are still selling in hours or days due to high demand.”

Even if 30% of people who want homes are priced out of the market because of rising mortgage rates, that leaves 70% who can still afford to buy and will continue to drive up the prices of available homes.

“Inflation, affordability, interest rates, supply, and other factors will likely need to combine over the course of the year to stop rising prices,” Gifford said.

Jay McCanless, an equity research analyst at Wedbush Securities, says rates have been moving higher for 16 months, with no slowdown in home prices. Sales might decline for a month or two, but that’s often because there aren’t enough homes for sale in a key market.

“We’re hesitant to say a certain rate level or percentage will pause or stop demand," he told us. “We’d also note that the lack of shelter – rental and for sale – is as acute as we’ve ever seen. That acute shortage has and may continue to put stress on all types of for rent and for sale housing."

Bad news for renters

Shmuel Shayowitz, president and chief lending officer at Approved Funding, says these housing conditions are bad news for people who must continue to rent.

“As with most supply-and-demand principles, if more people revert to renting, that will continue to add more pressure to an already rising rental marketplace,” Shayowitz said.

Polina Ryshakov, lead economist at real estate broker Sundae, points out the difference in 3% and 5% mortgage rates translates to about $125,000 more on a $500,000 home. But with record-low inventory, that fact won’t slow sales this spring.

"These higher rates will eventually slow the bidding wars that we’re seeing because it will limit how many people can afford to buy homes,” Ryshakov told ConsumerAffairs.

The National Association of Realtors’ latest existing home sales report illustrates the imbalance now present in the housing market. Home sales sank 7.2% in February, but the median home price rose to $357,000. That means homes were 15% more expensive than they were in February 2021.

The rush to buy a home in early 2022 has further reduced the number of home listings and sent prices to record highs.

In February, the U.S. median listing price increased 12.9% year-over-year to a new all-time high of $392,000, surpassing the 2021 peak of $385,000 in July, according to real estate marketplace Realtor.com.

While there was some improvement in the number of homes for sale, inventory levels remain near historic lows. That, along with a jump in interest rates, posed affordability issues for buyers last month.

"Historically low interest rates"

Ryan David, owner and lead investor at We Buy Houses In Pennsylvania, says he has witnessed significant changes in the housing market over the last two years.

“Historically low interest rates are driving home sale prices,” David told ConsumerAffairs. “This is creating additional buyers and hurting already low housing inventory.”

But David notes that the COVID-19 pandemic is also a factor. He says it’s created a “tidal wave” of buyers – a wave that he says has yet to crest.

“Inflation coupled with more regulation and a sluggish U.S. economy is also driving fewer homes being built than demand calls for,” David said. “Add up all these factors, and it's become exceptionally difficult to buy a home.”

A decline in new home construction over the last decade has been a major contributor to shrinking inventory levels. Builders complain that the costs of land, materials, and labor have risen dramatically, leading to the construction of new “affordable housing.”

Inventory levels have plunged

Realtor.com reports that the inventory of active listings declined 24.5% year-over-year in February, improving slightly over January’s numbers. However, there were still 122,000 fewer available listings than during a typical day in February 2021, and inventory was down 62.6% from February 2020.

Danielle Hale, Realtor.com’s chief economist, says the fact that a record listing price has been set this early in the year is not a good sign for would-be buyers.

"This is the first time the record has been broken in February, signaling that competition is already heating up weeks before the start of the spring buying season,” Hale said. 

But Hale says there may be hope on the horizon if inventory levels continue to improve and there is a slowdown in rising home prices.

The cost of shelter was one of the fastest rising components of the January Consumer Price Index, which rose at an annual rate of 7.5%. A new report from real estate marketplace Zillow suggests that the reason is tied to rising prices for the average home.

Zillow reports that a record 146 U.S. cities became new "million-dollar cities" in 2021, meaning the typical home in the metro is valued at $1 million or more. By Zillow’s count, there are now 481 such cities in the U.S.

Geography has a lot to do with it. Most of these million-dollar cities are clustered within a few large coastal regions, such as the San Francisco and New York metros. Los Angeles and San Jose are also part of the club. The researchers say 60% of all million-dollar cities lie within eight metro areas, and almost half – 44% – are in California.

Indian Creek, Fla., a 300-acre island in Biscayne Bay in Miami, holds the distinction of being the most expensive city in the country. Zillow reports that a typical home on the island goes for around $28 million.

Values also surged in the heartland

But a city doesn’t have to be on one of the coasts to see head-spinning price appreciation. Cody Hunter is the strategic construction adviser at Real Estate Bees in Boise, Idaho. He tells ConsumerAffairs that home prices there have risen 37% year-over-year, and that's largely a product of people moving to the metro.

“For those not in residential real estate, it’s hard to articulate just how much migration we are experiencing and how much that migration in the form of demand, in addition to supply and labor shortages affects home prices,” Hunter said.

Mark Hamrick, senior economic analyst at Bankrate, says a number of factors have combined to make homes more expensive. Construction costs have risen sharply in recent years and, as a result, fewer new homes have been built. Now, the cost of financing is going up.

“In recent months, we've seen a sharp rise in mortgage interest rates, accelerating of late on the back of the surge in the yield of the 10-year Treasury bond,” Hamrick told ConsumerAffairs. “Not only have home prices been surging, but now mortgage rates have rebounded off recent lows. The national average on the 30-year fixed-rate mortgage this week has topped 4% for the first time since July 2019.”

The challenge for first-time buyers

So where does all of this leave people who want to buy their first home? Michael Clark, founder of the home management platform Pulled, says homes are now so expensive that buyers are overextended.

“This trend is not sustainable,” Clark told ConsumerAffairs. “With the average college graduate graduating with over $100,000 in debt and the job market showing stagnating income growth, the average new buyer can't keep up with such quickly rising prices."

Paraag Sarva CEO and co-founder of Rhino, a firm supporting the rental industry, agrees that consumers’ incomes simply haven’t kept up with home prices.

“First-time homebuyers are being priced out and forced to rent because they can't afford to purchase a home at this time,” Sarva told ConsumerAffairs. “On top of that, according to the National Association of Realtors (NAR), over 35% of Millennials cite student loans as the main reason they remain renters.” 

Prices are unlikely to go down, but Hamrick says there could be some moderation in home price gains and home sales in the months ahead. A big help, he says, would be an increase in the number of existing homes on the market, along with new construction of smaller, entry-level homes.

The 2022 housing market has just begun, but it's already off to a red-hot start. In January, the typical U.S. home sold faster than in any prior January, according to the Realtor.com Monthly Housing Report.

When you drill down into certain popular markets, the pace was even faster. Listings sold within 36 days in Nashville, San Diego, San Jose, Calif., Denver, and Raleigh, N.C. Based on how it began, Realtor.com Chief Economist Danielle Hale is forecasting another huge year for the housing market.

“Homes sold at a record-fast January pace, suggesting that buyers are more active than usual for this time of year," Hale said. "But it's a different story on the other side of the closing table, with new seller listings continuing to decline in January.” 

Fewer homes, more competition

A decline in listings will likely result in even more competition among buyers, who will need all the help they can get to land the home they want. Jodi, of Fort Wayne, Ind., was working without a realtor when she called BNC Bank’s 800 number. She said she was fortunate to get a customer service rep named Shawna.

“Had it not been for Shawna, I would have struggled,” Jodi wrote in a ConsumerAffairs review. “I got 2.8%. She linked me up with a title company and we have mobile notaries. It was a really smooth process.”

Marcial, of Fort Worth, said the combination of a good Realtor and the sales representatives at LGI Homes proved to be helpful.

“LGI sat us down and gave us information about the community,” Marcial wrote in a ConsumerAffairs post. “We toured all the homes that were available. We walked through the prices and what each one would look like. It was a pretty good conversation. Our rep was very communicative. He messaged us when he said he was going to and if we had any questions or any updates, he would reply in good time.”

Things could soon get harder for buyers

If inventory levels continue to shrink in the months ahead, things could get more challenging for buyers. Hale says factors such as uncertainty surrounding the Omicron variant could be causing sellers to hesitate even when they know housing conditions are favorable. 

“Another key barrier is the inventory 'chicken-and-egg' dilemma that may vex sellers who are also buying: Do you list now when home shoppers are hungry for more options, or do you wait for more inventory to hit the market in the spring?” Hale asked.

“Ultimately, only you know the best time for your family to make a move, but preparation is key to acting quickly when the right opportunity comes along.”

After months of competition for homes that drove prices to record highs, many buyers took a break last month. The National Association of Realtors (NAR) reports existing home sales declined 2% in August from July and were 1.5% lower than in August 2020.

Even so, sales remain higher than before the pandemic. So do prices. The median home sale price in August was $356,700, up 14.9% from August 2020. NAR says prices were up in every region of the country and caused many would-be buyers to pause their search.

"Sales slipped a bit in August as prices rose nationwide," said Lawrence Yun, NAR's chief economist. "Although there was a decline in home purchases, potential buyers are out and about searching, but much more measured about their financial limits, and simply waiting for more inventory."

Inventory has been a major impediment to the housing market over the last several years. People are remaining in their homes longer than in years past and builders have slowed construction activity in the face of rising costs.

According to NAR, the total housing inventory at the end of August was just 1.29 million units, down 1.5% from July's supply and down 13.4% from one year ago. Unsold inventory is at a 2.6-month supply at the current sales pace, unchanged from July but down from three months in August 2020.

Yun says record-high prices make for an unbalanced housing market but that price inflation would slow considerably if there were more homes for sale. But unless there is a steep decline in demand or homebuilders get busy, that’s unlikely to happen in the short run.

Not as much demand for second homes

In a separate report, real estate broker Redfin said demand for second homes fell sharply in August, declining nearly 20% from August 2020. The company attributes the drop to last summer’s surge in second home purchases.

"The pandemic isn't over, but the desire to escape isn't as intense as it was before,” said Taylor Marr, Redfin's lead economist. "People are increasingly returning to life as normal, with kids going back to school and cities coming to life again. The housing market as a whole is still booming, just not as strongly as it was in the second half of 2020.”

Marr says competition, migration, and home-sales growth have all slowed in the last 12 months.

The rapid increase in home prices leveled a bit last month, but rents were much higher than in August 2020.

Realtor.com reports the cost of renting a home hit double-digit growth for the first time in two years in August, and it grew three times faster than in March 2020. Rents grew by double-digits in more than half the nation’s 50 largest housing markets, with Tampa leading the way with a 30.6% year-over-year increase.

"Put simply, August trends suggest rents are making up for lost time,” said Realtor.com chief economist Danielle Hale. 

Rents flatlined early in the pandemic

Hale notes that rents remained low during some of the worst months of the pandemic. For example, rents grew less than 2% from September 2020 to March 2021. One factor was a migration from urban apartments to suburban single-family homes.

"Now we've reached a stage in the COVID-19 recovery where people are ready to move, and we're seeing urgency to find new living spaces immediately,” Hale said. “A lot of this demand can be attributed to vaccines opening up offices and city-life, young adults feeling more confident to strike out on their own, and homebuyers needing to take a break from the red hot housing market.”

In August, the median rent was a little over $1,600 a month. With many people moving back to urban areas, Hale predicts renters could see even more increases over the next few months.

Home prices have slowed

That could make purchasing a home a little more attractive. Zillow’s latest market report shows home prices leveled off in August, largely due to an increase in homes on the market and some price reductions.

"The strong recovery of inventory and initial lift off the gas pedal for home value appreciation is indicative of balance returning to the market," said Nicole Bachaud, economic data analyst at Zillow. "But, the major demand drivers that have pushed the market to extremes this year are still present — we're moving from a white-hot midsummer to somewhere closer to red hot as we head into the fall."

According to the Zillow report, U.S. home values are up a record-breaking 17.7% from a year ago. That put the typical U.S. home value in August at $303,288. The housing markets that saw the fastest growth are Austin, where the average home increased in value by 44.8%, and Phoenix, where home values grew 31.8%.

"Another month of rising for-sale inventory gives shoppers more options to choose from and less competition, which should help reduce bidding wars and further moderate rampant price hikes," Bachaud said. "A slightly less frenzied market means buyers have a much better chance to land the home they're bidding on, and may even see a price drop on their saved listings, but keep in mind the market is still much hotter than normal for this time of year."

At the end of an extremely active spring home-buying season, the median price for a home posted an 18.6% increase, according to the S&P CoreLogic Case-Shiller Index.

The June increase came on the heels of a 16.8% rise in home prices in May, further adding to affordability challenges facing buyers. 

Phoenix, San Diego, and Seattle reported the highest year-over-year gains among the 20 cities in the index in June. The median price in Phoenix was up nearly 30% over June 2020, while prices in San Diego were 27% higher. Seattle wasn’t far behind, with home prices rising 25%.

"June 2021 is the third consecutive month in which the growth rate of housing prices set a record," said Craig Lazzara, managing director at S&P DJI.

Lazzara says it was also the 13th straight month of accelerating home prices, with many of those months seeing double-digit price gains on a year-over-year basis.

 "The last several months have been extraordinary not only in the level of price gains but in the consistency of gains across the country,” he said. “Home prices in 19 of our 20 cities now stand at all-time highs, as do the National Composite and both the 10- and 20-City indices.”

Supply and demand

A major factor driving those prices higher is an imbalance in supply and demand. Americans have been on the move since the COVID-19 pandemic began, with many heading for smaller cities because they could work remotely. At the same time, the number of available homes for sale continued to decline over the last 12 months.

The National Association of Realtors (NAR) reports that inventory levels improved in July, along with existing home sales. But there was no slowdown in home prices.

NAR reported that the median existing home price for all housing types in July was $359,900, up 17.8% from July 2020. Each region saw prices climb, and it was the 113th straight month of year-over-year gains.

"Although we shouldn't expect to see home prices drop in the coming months, there is a chance that they will level off as inventory continues to gradually improve," said Lawrence Yun, NAR’s chief economist.

In the meantime, Yun says some prospective buyers who are priced out of the housing market are increasing the demand for rental homes and thereby pushing up the rental rates.

The median price of a single-family home in the U.S. rose to $357,900 in the second quarter, another record high, according to the National Association of Realtors (NAR). Prices rose in all but one of the 183 measured metros, increasing $66,800 -- or nearly 23% -- over the same period in 2020. 

The rise is contributing to the increasing wealth gap in America. People who own a home saw their net worth rise dramatically over the last year. People who do not own real estate generally stayed the same in terms of wealth while the barrier to becoming a homeowner got bigger.

Lawrence Yun, chief economist at the NAR, is hopeful that things will get better for first-time buyers in the months ahead. 

"Home price gains and the accompanying housing wealth accumulation have been spectacular over the past year, but are unlikely to be repeated in 2022," Yun said. "There are signs of more supply reaching the market and some tapering of demand. The housing market looks to move from 'super-hot' to 'warm' with markedly slower price gains."

Low mortgage rates are key

Any price gains to these already lofty valuations will likely pose challenges for buyers. The one mitigating factor is near record-low mortgage rates. But if rates begin to rise, the market will face a growing affordability issue.

The NAR report shows that 12 U.S. metro areas posted year-over-year home price gains of 30% or more. Eight are in either the South or West. Here are the housing markets where homeowners saw the largest gains:

• Pittsfield, Mass. (46.5%)

• Austin-Round Rock, Texas (45.1%)

• Naples-Immokalee-Marco Island, Fla. (41.9%)

• Boise City-Nampa, Idaho (41%)

• Barnstable, Mass. (37.8%)

• Boulder, Colo. (37.7%)

• Bridgeport-Stamford-Norwalk, Conn. (37.1%)

• Cape Coral-Fort Myers, Fla. (35.6%)

• Tucson, Ariz. (32.6%)

• New York-Jersey City-White Plains, N.Y.-N.J. (32.5%)

• San Francisco-Oakland-Hayward, Calif. (31.9%)

• Punta Gorda, Fla. (30.8%)

Supply and demand imbalance

The rapid rise in home prices in recent years has largely been the result of a supply and demand imbalance. Homebuilders have not produced enough new homes to satisfy the needs of a generation that has moved into household formation in the decade after the Great Recession. Yun says that has contributed to an affordability problem for many young families.

"Housing affordability for first-time buyers is weakening," he said. "Unfortunately, the benefits of historically-low interest rates are overwhelmed by home prices rising too fast, thereby requiring a higher income in order to become a homeowner."

Among first-time buyers, the mortgage payment on a 10% down payment loan jumped to 25% of income, up from 21.2% one year ago. The NAR says a mortgage is affordable if the payment amounts to no more than 25% of the family's income.

Soaring home prices have had the effect of also raising rents. People who can’t afford to purchase a home are now finding it increasingly expensive to rent one.

Data from Apartments.com shows average rent prices are up 7.5% year-over-year, which is three times the normal growth rate. It’s even worse in popular Sunbelt housing markets that have seen a dramatic influx of new residents during the pandemic.

The Washington Post cites the case of apartment residents in Phoenix who were told their rent would go up by $400 a month, a 33% increase. Housing experts say it’s partly because markets like Phoenix are growing in popularity. It’s also because many young people who left the cities at the start of the pandemic are returning.

“I think we’re going to see increases for the next 12 to 18 months,” Robert Pinnegar, president of the National Apartment Association, told the Post. “We’ve never had three generations in the rental housing space, at least not in the numbers we’re seeing now.”

Single-family homes see the biggest increase

The cost of renting a single-family home is leading the surge since there is less of that inventory than apartments. In a report looking at April 2021 data, CoreLogic found a national rent increase of 5.3% year-over-year, up from a 2.4% year-over-year increase in April 2020.

“Single-family rent growth showed a strong rebound in April 2021 with all price tiers back above their pre-pandemic rent growth rate,” said Molly Boesel, principal economist at CoreLogic. “While rent growth slowed last April at the start of the pandemic, the rate of rent growth this April was running above pre-pandemic levels even when compared with 2019 and shows no signs of diminishing.”

That puts renters who would like to buy a home in a difficult situation. Home prices continue to accelerate, meaning they need a bigger down payment. But as rents rise, it makes it more difficult to save money and become homeowners.

Down payments are a challenge

"Without the equity from a previous home sale, first-time homebuyers face more challenges in coming up with a down payment," said Zillow economic data analyst Nicole Bachaud. "In a housing market where prices are rising at record rates, especially when compared to renter incomes, the ever-increasing sum of a 20% down payment can feel out of reach.”

The only bright spot in all of this is the cost of borrowing money. Mortgage rates remain nearly record lows.

First time buyers can take advantage of the Federal Housing Administration’s (FHA) FHA loans, which allow qualifying applicants to put as little as 3% down.

“That lower upfront payment comes with higher monthly payments, but the opportunity to build equity can outweigh those extra costs for many," Bachaud said.

You’ll find more information about FHA loans here.

Mortgage loan company Freddie Mac said in a report released Thursday that the average 30-year fixed-rate mortgage in the U.S. has once again dropped below 3% in 2021. 

The report said 30-year FRM averages are now 2.98%; 5-year Treasury-indexed hybrid adjustable rate mortgage averages are 2.54%; and the rate for a 15-year loan fell to 2.26% from 2.34% last week. 

Last week, the average for the 30-year home loan was 3.02%. A year ago, the rate was 3.07%.

The Labor Department also recently reported that the number of Americans seeking unemployment benefits has fallen to its lowest level since the pandemic began last year. The government said those figures signal that the job market and the economy are bouncing back from their pandemic-related depths. 

Low rates may not last long

Despite low mortgage rates, the market has seen a decline in demand for both refinance and purchase mortgages. 

“Economic growth remains steady and is bolstering more segments of the economy,” said Sam Khater, Freddie Mac’s Chief Economist. “Although low and stable mortgage rates have kept the housing market booming over recent months, a deterioration in affordability and for-sale inventory has led to a market slowdown.”

Experts aren’t confident that low mortgage rates will last much longer. It’s widely believed that mortgage rates will spend the second half of the year inching upwards rather than downward, and many experts recommend that homebuyers take full advantage of the current market.

Mortgage rates moved higher late last week, and housing industry analysts are watching to see what they do this week. Another tick higher could make home-buying even more costly.

Freddie Mac reports the rate on the 30-year fixed-rate mortgage averaged 3.02% at the end of last week, rising from 2.93%.

“Mortgage rates have risen above 3% for the first time in ten weeks,” said Sam Khater, Freddie Mac’s chief economist. “As the economy progresses and inflation remains elevated, we expect that rates will continue to gradually rise in the second half of the year. For those homeowners who have not yet refinanced – and there remain many borrowers who could benefit from doing so – now is the time.”

Current homeowners could realize big savings on their monthly mortgage payments if they can lower their present interest rate by a point or more. However, the upward movement in rates may have a bigger impact on people hoping to buy a home in a red-hot real estate market.

Interest rates’ impact

A 3% mortgage rate is still near historic lows, but home prices are at historic highs. The bigger the mortgage, the more impact even a slight rise in interest rates can have.

For example, on a $400,000 mortgage financed for 30 years, the difference between last week’s rate and this week’s rate is $20. It might not sound like much, but for a buyer on the edge of qualifying for a mortgage, it can make a difference.

More importantly, no one thinks rates will stop at 3.02%. Mortgage rates are tied to the yield on the 10-year Treasury bond, and that rate has been moving higher on inflation concerns. 

Rising rates, along with rising home prices, may already be affecting the housing market. Real estate broker Redfin reports that demand for housing has fallen below 2020 levels for the first time this year.

“Some homebuyers are pausing or abandoning their plans to buy because homes in their area have gotten too expensive," said Redfin Chief Economist Daryl Fairweather. "Even though there are no signs of prices coming down, homebuyers may face a bit less competition and have a bit more selection of homes this summer than they did earlier this year.”

Competition and prices heating up

Intense competition for homes that began during the pandemic has already bid up home prices to record levels. Over the last four weeks, Redfin reports that the median home-sale price increased 23% year-over-year to $361,750, a record high.

Asking prices for newly listed homes were up 13% from the same time a year ago to a median of $362,600, down 0.2% from $363,250 during the four-week period ending June 6. 

It’s not only getting harder to buy a home, it’s getting more difficult -- and expensive -- to rent one.

When the pandemic prompted many apartment dwellers to move out and purchase single-family homes, rents flatlined and landlords offered incentives to keep their units occupied. But a new report from realtor.com shows that rental bargains are now few and far between.

Rents in the nation’s 50 largest housing markets rose in March for the first time in eight months, increasing 1.1% year-over-year. The median rent last month in those same markets was $1,463. It marked a reversal from the preceding months, when rent growth had slowed from 2.2% in July 2020 to just 0.6% in February.

"Although we're still below the 3.2% growth we were seeing before COVID, average rent growth in the nation's largest housing markets saw its first uptick since July 2020, and rents are poised to rise at a quickening pace as recovery continues,” said realtor.com Chief Economist Danielle Hale.

But Hale says there are exceptions. Markets dominated by high-tech employers, along with large metros like Chicago and Los Angeles, are actually seeing rent declines. But she says that could change in the coming months as the red-hot housing market eventually increases competition for rentals.

Home prices still rising by double-digits

Real estate broker Redfin reports that the median home sale price has increased by 18% year-over-year to $344,625, an all-time high. It attributes the rise to a trend that has occurred throughout the pandemic -- families in search of more space.

More buyers and fewer available homes have given sellers the upper hand. The Redfin report shows that asking prices reached an all-time high of $356,175 during the last four weeks. Homes that sold were on the market for an average of just 21 days before going under contract -- the shortest time since 2012.

More telling, 45% of homes sold for more than their list price, an all-time high. This was 18 percentage points higher than the same period a year earlier.

Hope for buyers?

With homebuilders producing fewer new houses, the housing market is dependent on owners of existing homes to list their properties for sale. Now that the pandemic appears to be winding down, real estate marketplace Zillow reports that more people are doing just that.

The inventory of homes for sale went down 1.1% last month, but Zillow notes that the decline was the smallest since July. Zillow takes that as a sign that listings have resumed normal seasonal patterns and predicts that frustrated buyers could find more choices in the months ahead.

However, prices are still going up. Zillow reports that home value appreciation pushed the accelerator closer to the floor in March, rising a record 1.2% month-over-month to $276,717. 

The U.S. housing market continues to pose challenges to buyers as prices continue to rise, along with interest rates. The combination makes monthly payments higher and could put many homes out of reach for the average buyer.

From mid-February to mid-March, the median home price surged 17 percent year-over-year to $330,250, according to real estate broker Redfin. The company says it’s the biggest four-week increase since 2016.

"This time last year, the housing market was shutting down as many cities implemented strict shelter in place orders,” said Redfin Chief Economist Daryl Fairweather. “A year later the pandemic is still with us, but the housing market is red-hot.”

Fairweather says the competition for the declining number of homes for sale is so intense that some buyers are acting irrationally. He says bidding wars have stretched valuations in some markets, and buyers are coming up with extra cash to make the purchase.

Not a bubble

If that sounds like a bubble, Fairweather says it isn’t. He says the demand is real, and there are enough people who can afford to pay the higher prices homes are now bringing.

“Bubbles burst; I don't see that happening,” he said. “The best hope buyers have is that home prices start to grow at a slower pace, but I don't expect prices to fall."

While homes cost more, so do mortgages. The average 30-year fixed-rate mortgage is around 3.25 percent, about a half-point higher than a month ago. On a $250,000 mortgage, the difference in the monthly payment is $61 a month or $732 a year.

Rates are rising because the yield on the Treasury Department’s 10-year bond has risen sharply over the last month over concerns that monetary and fiscal policy will set off a round of inflation.

Get creative

So, what’s a buyer to do? Some are getting creative.

The Wall Street Journal reports that the pandemic and resulting increase in home demand and prices have led to a rise in multi-generational family members chipping in and buying a home together. Around 15 percent of home sales between April and June last year were multigenerational purchases.

According to the National Association of Realtors (NAR), past multi-generational home sales were largely motivated by caring for aging parents. In the last few months, affordability has also been a driver of the trend.

Homebuilders, such as DR Horton, have begun offering multi-generational home plans. These homes usually offer a separate living area under one roof, often with a separate entrance.

People who have shopped for a home in the last year know that home prices are going up. The latest S&P CoreLogic Case-Shiller Indices show just how much.

Closing out 2020, the indices for December show home prices rose 10.4 percent, up from 9.5 percent in November. Broken down into a 10-City Composite -- looking at the key markets -- prices were up 9.8 percent.

Phoenix, Seattle, and San Diego maintained their lead as the hottest real estate markets with Phoenix home prices gaining 14.4 percent. Prices were 13.6 percent higher in Seattle and were up 13 percent in San Diego.

The coronavirus (COVID-19) pandemic did nothing to slow the price rise and the rush by homebound consumers to purchase homes may have contributed to the acceleration in prices.

Double-digit gains

"Home prices finished 2020 with double-digit gains, as the National Composite Index rose by 10.4% compared to year-ago levels," says Craig J. Lazzara, managing director and global head of Index Investment Strategy at S&P DJI. "As COVID-related restrictions began to grip the economy in early 2020, their effect on housing prices was unclear. Price growth decelerated in May and June and then began a steady climb upward, and  December's report continues that acceleration in an emphatic manner.” 

In fact, Lazzara says the 10.4 percent gain in home prices in 2020 marks the sharpest calendar year rise in home prices since 2013. He also says the data supports the belief that the pandemic has encouraged potential buyers to move from urban apartments to suburban homes. 

“This may indicate a secular shift in housing demand, or may simply represent an acceleration of moves that would have taken place over the next several years anyway,” he said. “Future data will be required to address that question.”

Prices kept rising in January

Individual real estate firms have more recent sales data and one broker, Redfin, reports there has been no letup in rising home prices in the new year. It notes much of the price increase is being driven by a shortage of available homes.

"The imbalance between supply and demand reached a new high in January," said Redfin’s chief economist Daryl Fairweather. "Buyers were eager to make offers and make them quickly to take advantage of historically low mortgage rates while they last.”

That’s posing challenges for would-be buyers, who often find that the house they like goes under contract before they can even see it. Even when they put in an offer, Fairweather says they can lose out to other buyers in a bidding war.

Homebuyers and homeowners looking to refinance have been pushed into a whale of a dilemma. While one industry report shows that homeownership is quickly sliding into “unaffordable territory” in much of the U.S., mortgage rates are the most affordable they’ve been in 30 years. 

According to the just-released Primary Mortgage Market Survey by Freddie Mac, the 30-year fixed-rate mortgage is at an average of 2.65 percent, the lowest rate in the survey’s history, which dates back to 1971.

“A new year, a new record low mortgage rate. Despite a full percentage point decline in rates over the past year, housing affordability has decreased because these low rates have been offset by rising home prices,” said Sam Khater, Freddie Mac’s Chief Economist, commenting on the conundrum.

Overall savings are impressive

Freddie Mac’s survey found some interesting comparative tidbits about the shift in mortgage rates. As an example, a 30-year fixed-rate mortgage averaged 2.65 percent with an average 0.7 points for the week ending January 7, 2021, which is down from last week when it averaged 2.67 percent. 

A year ago at this time, the 30-year FRM averaged 3.64 percent. On a $300,000 mortgage, that’s a difference of more than $150 a month -- $1,209/mo. now vs. $1,371/mo. a year ago. But the real savings is in the overall out-of-pocket cost. All told, the total cost of the mortgage on the new rate would be $435,201 vs. $493,448 on last year’s rate.

For those who can swing a larger monthly payment, a 15-year fixed-rate mortgage averaged 2.16 percent with an average 0.6 points, down slightly from last week when it averaged 2.17 percent. A year ago at this time, the 15-year FRM averaged 3.07 percent. On a $300,000 mortgage, that equates to $1,953/mo. now vs. $2,082/mo. a year ago. 

More impressive is the savings on the total cost of a 15-year mortgage, dropping close to $100,000 from a 30-year note at $351,487 now vs. $374,735 with the mortgage rate a year ago.

A 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.75 percent with an average 0.3 points, up a smidge from last week when it averaged 2.71 percent. A year ago at this time, the 5-year ARM averaged 3.30 percent.

You’ll need good credit and 20 percent down

While the Freddie Mac survey sounds like a no-lose proposition, the truth is that to get rates like the ones listed, the survey focuses on conventional, conforming, fully amortizing home purchase loans for borrowers who put 20 percent down and have excellent credit. Freddie Mac also noted that borrowers may still pay closing costs that are not included in the survey.

If a consumer is going to act on these favorable rates, Khater says they better do it now.

“The forces behind the drop in rates have been shifting over the last few months, and rates are poised to rise modestly this year. The combination of rising mortgage rates and increasing home prices will accelerate the decline in affordability and further squeeze potential homebuyers during the spring home sales season,” he said.

Despite record-low mortgage rates, a new industry report shows that homeownership is quickly sliding into “unaffordable territory” in much of the United States.

In its fourth-quarter 2020 report, ATTOM Data Solutions, a property data firm, found that median home prices of single-family homes and condos were less affordable than historical averages in 55 percent of counties in the U.S.

That’s a sharp increase from 43 percent a year ago and 33 percent three years ago. Without falling mortgage rates and rising wages, the company said the number would likely be much higher.

To be considered affordable, a home with a mortgage must fall within a range that requires no more than 28 percent of a homeowner’s income to pay the mortgage, property taxes, and insurance.

That required income was then compared to annualized average weekly wage data from the Bureau of Labor Statistics. The analysis showed that 275 of 499 counties analyzed in the fourth quarter of 2020, or 55 percent, were less affordable than past averages.

Rising home prices

The main reason for the lack of affordability is the relentless increase in home prices. Even with the coronavirus (COVID-19) pandemic, which briefly halted sales, prices continued to rise and demand for homes ran well ahead of homes on the market.

In fact, prices in 2020 have risen faster than wages and wiped out the benefit that buyers would normally realize from declining mortgage rates. The report found major home-ownership expenses consumed 29.6 percent of the average wage across the nation during the fourth quarter of 2020. A year earlier, the figure was 26.4 percent.

The National Association of Realtors reported that the median existing-home price in November was $310,800, up 14.6 percent from November 2019. It said prices were higher in every region of the country. 

"Owning a home in the United States slipped into the unaffordable zone for average workers across the nation in the fourth quarter as the numbers continued a year-long slide in the wrong direction,” said Todd Teta, chief product officer with ATTOM Data Solutions. “The latest housing market data shows the average worker unable to meet the 28 percent affordability guideline used by lenders." 

Conditions look bleak for buyers

Teta says the outlook remains uncertain. For now, he says it’s a seller’s market, and “things are going in the wrong direction for buyers."

There were 499 counties listed in the report, and only 41 percent of them had homeowner costs that aligned with affordability guidelines for the average wage earner. They include Cook County, Ill., Harris County, Tex., and Philadelphia County, Pa.

There were 296 counties with unaffordable major expenses on median-priced homes for average earners. They include Los Angeles County, Calif., Maricopa County, Ariz., and San Diego County, Calif.

Two industry reports show that home prices have surged in the final months of 2020, offsetting the advantage buyers got from record-low mortgage rates.

The S&P CoreLogic Case-Shiller Index, a closely watched but lagging indicator, shows that home prices rose at the fastest rate since 2014 in October, the last month for which data is available.

More recent data comes from real estate broker Redfin, which reports that the median home sale price rose 14 percent in the four-week period ending December 20. Together, the two reports show homeowner equity continues to increase while the barrier to homeownership got a little steeper.

The S&P CoreLogic Case-Shiller price index tracks prices in 20 large housing markets and shows that prices increased at a 7.9 percent annual rate in October. In September, the rate of growth was 6.6 percent.

It’s the steepest increase in six years and was fueled by low mortgage rates and a huge increase in buyers, many of whom left apartments in cities in search of more space in the suburbs and smaller cities. Presumably, the coronavirus (COVID-19) pandemic played a role.

Phoenix prices rose the fastest

Some markets saw prices rise faster than others. Phoenix led the way with a 12.7 percent increase. Seattle was next at 11.7 percent, and San Diego was third at 11.6 percent.

New York, Chicago, and Las Vegas -- all cities hard-hit by the economic effects of the pandemic -- saw price gains of less than 7 percent.

The Redfin data shows that December was an exceptionally strong month for home prices, with the median sale prices hitting $320,714 -- a 14 percent year-over-year increase. The report also shows that pending home sales -- a measure of contracts signed but not yet closed -- were up 34 percent.

Picking up momentum

The pace of activity actually increased as the year drew to a close. Pending home sales surged 30 percent in the week ending December 20. However, active listings -- the number of homes on the market -- fell 31 percent year-over-year to a record low.

"Going into the new year, it will truly be out with the old, because there will be very few homes from 2020 left on the market," said Redfin’s chief economist Daryl Fairweather. "So those who resolve to buy a home in 2021 may need to wait with bated breath for sellers to list their homes.”

Fairweather predicts that the rising prices of home will lead to more homes being listed in 2021. But he says that increase in inventory will likely go fast since the pent up demand from buyers shows no sign of letting up. 

If you’re a homeowner, your net worth may be higher than it was before the start of the coronavirus (COVID-19) pandemic.

If you’ve managed to stay employed and haven’t run up a big credit card bill, then the equity in your home has likely made you richer, thanks to the rapid increase in home values over the last six months.

ATTOM Data Solutions, a property data firm, reports that 16.7 million U.S. homes were classified as “equity-rich” in the third quarter of 2020, meaning the combined estimated amount of loans secured by those properties was 50 percent or less of their estimated market value.

That represents 28.3 percent, or about one in four, of the U.S. homes with a mortgage. It’s up from 27.5 percent in the second quarter when home values began to take off.

How the pandemic affected the market

Home sales surged once shelter-in-place orders were lifted. Many of the buyers were apartment dwellers who were suddenly working from home and decided they needed more room. Many also determined that they could continue working remotely and didn’t confine their choices to homes in the city where they worked. Single-family home sales boomed in many smaller cities.

The increase in demand, without a corresponding increase in supply, put sellers in the driver’s seat, and home listing prices -- and sales prices -- rose quickly.

Not all homeowners are benefitting, however. The report shows that around 3.5 million homes -- or one in 17 homes with a mortgage -- are considered seriously underwater, meaning the homeowner owes more than the home is worth. But fortunately, that number has trended lower during the pandemic.

"Homeowner equity in the third quarter added another pebble to the pile of markers showing that the U.S. housing market continues to defy the broad downturn in the economy this year,” said Todd Teta, chief product officer with ATTOM Data Solutions. “Home prices keep rising, boosting the balance sheets of homeowners throughout most of the country."  

Economic bright spot

Teta says housing has been a bright spot in an otherwise shaky pandemic economy. He says homeowners stand to benefit as long as the market remains strong.

Coastal real estate markets, which tend to be among the most expensive in the nation, had far higher levels of home equity in the third quarter of 2020 than other areas of the United States. 

The top 11 states with the highest share of equity-rich properties in the third quarter were all in the Northeast and West, led by Vermont, California, Hawaii, Washington, and Idaho.

Real estate industry experts are still learning how the coronavirus (COVID-19) has affected the housing market and identifying trends that may last for a while. For one thing, homes are a lot more expensive than they were before the pandemic, but not everywhere.

The median home price in September surged by a record 15 percent, to $320,625, according to a report from real estate broker Redfin. More than a third of that increase has occurred since early July.

In August, pending home sales were up 26 percent year-over-year, and homes sold almost as fast as they could be listed. More than 45 percent of homes that went under contract had an accepted offer within the first two weeks on the market, a trend that has held relatively steady for the last 17 weeks.

Housing experts are in general agreement that the effects of the pandemic are driving sales and pushing up prices. With people spending so much time at home, there is increasing demand for homes with more indoor and outdoor space.

Tele-work trend

With millions of people now able to work from anywhere, it’s no longer necessary to live within commuting distance of the office -- or what used to be the office. Because of that, housing markets like New York and San Francisco -- two of the most expensive U.S. housing markets -- have seen median home prices decline since the pandemic.

Analyst Troy Ludtka with Natixis, an investment banking firm, told USA Today that these trends have bolstered home sales, and there’s little reason to believe the teleworking shift won’t at least partly continue even after the pandemic has subsided.

COVID-19 seems to have produced a reverse image of the housing market. Before the pandemic, urban real estate was quickly appreciating in value while rural homes went begging. Now, rural and suburban properties are selling quickly, resulting in faster-rising prices.

New demand for luxury homes

Before the pandemic, the strongest demand was for entry-level housing. Now, the Redfin report shows that large luxury homes are in demand.

“Large, expensive, luxury homes are taking up a bigger share of the homes that are selling, which is driving a high growth rate for the median sale price," said Redfin chief economist Daryl Fairweather. "Remote work is increasing demand from affluent people, while middle-income people are more often expected to do their jobs in-person, and many have been affected by furloughs and shutdowns."

Real estate professionals advise that people considering a home purchase should be prepared to act quickly once they find a property they like. However, buyers shouldn’t expect to engage in a lot of negotiation. The average sale-to-list price ratio, which measures how close homes are selling to their asking prices, rose to 99.4 percent—an all-time high and 1.2 percentage points higher than a year earlier.

It’s also critical to get pre-approved by a lender before making an offer on a property. Obtaining a pre-approval letter will tell the seller you are serious and that your offer should be considered.

As the number of available homes on the market has fallen, the price for those homes has gone up in just about every metro area of the U.S.

The National Association of Realtors (NAR) reports that the median home price in the fourth quarter of last year rose in 94 percent of metros, with prices rising in 170 of 180 markets. That pushed the median home price up to $274,900, 6.6 percent higher than the fourth quarter of 2018.

"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," said Lawrence Yun, NAR’s chief economist. "We saw prices increase during every quarter of 2019 above wage growth."

Near-record low inventory

The inventory of available homes is not just down, it’s at its lowest point since Zillow began tracking that data in 2012. The real estate marketplace reported last month that inventory was down year-over-year in 31 of the 35 largest U.S. housing markets, with Seattle, San Diego, and Sacramento seeing the largest drawdowns. 

The exceptions to shrinking inventory are San Antonio, Detroit, Atlanta, and Chicago -- the only markets where inventory actually increased over the last 12 months.

With demand rising due to demographic factors and falling interest rates, the pressure on the shrinking home supply is the main factor causing prices to rise.

At the end of the year, NAR reported 1.40 million existing homes were on the market, a mark that was significantly lower than the number of available homes in the fourth quarter of 2018. Because of that, 18 metro areas saw double-digit price growth last quarter, including Trenton, N.J. at 18.2 percent; Boise City-Nampa, Idaho at 13.7 percent; and Gulfport-Biloxi, Miss. at 11.8 percent.

Small markets see big increases

Some of the strongest price growth occurred in smaller metro areas; prices moderated in larger markets that have seen an outward migration of younger residents who have sought more affordable housing elsewhere.

"Rising home values typically create wealth gains for existing homeowners as shown in NAR's latest study, however, areas that are deemed 'too expensive' will obviously have trouble attracting residents and companies looking to do business there," Yun said. "We need a good balance that benefits both current and future homeowners, but right now, the balance is still in favor of home sellers."  

Yun says a bright spot in the housing outlook is the cost of a mortgage. Interest rates on home loans are near a three-year low, helping to offset rising prices by moderating the monthly payment.

The Commerce Department reports that new home sales fell last month. At first glance, the 0.7 percent sales dip -- the largest monthly decline in five years -- could be taken as yet another sign that the economy is slowing.

While it may be that, the second part of the report is actually encouraging for those consumers who would like to become homeowners but can’t find a house that they can afford. The report shows the median price of new homes sold last month went down, falling below $300,000 for the first time in years.

Robert Frick, corporate economist at Navy Federal Credit Union, says that doesn’t mean builders are cutting prices. It simply means they are building more of the less-expensive homes that first-time buyers can afford.

“Hopefully this shows that builders are working to construct more affordable housing and that median price will continue to drop,” Frick told ConsumerAffairs. “Recent studies show half of prospective home buyers can't afford a home above $300,000, so for the industry to engineer a strong revival it must build more affordably-priced houses.”

Housing shortage

Sales of existing homes also fell in September and dropped at a steeper rate -- 2.2 percent. Lawrence Yun, chief economist at the National Association of Realtors (NAR), has spent the last few years urging the industry to build more entry-level homes.

“We must continue to beat the drum for more inventory,” Yun said last week. “Home prices are rising too rapidly because of the housing shortage, and this lack of inventory is preventing home sales growth potential.”

The shortage of existing homes pushed the median sale price up 5.9 percent in September, to $272,100, a factor that may have contributed to declining sales.

Since the housing market crash of 2009, the construction industry has produced new homes at about half the rate it did before the market collapsed. It has also focused on building more expensive luxury homes, not the kind of house most first-time buyers can afford.

Higher costs

When pressed on the issue, builders have complained about rising costs for materials and labor, as well as more stringent regulations. But location may also be a factor.

Strong Towns, a non-profit focused on community-building, points out that homes in hot markets with lots of high-paying jobs sell for more, and builders in recent years have focused on those areas.

Recent industry surveys show more people are moving out of expensive coastal markets and moving to smaller interior cities where real estate is a lot more affordable. The most recent new home sales report suggests builders may be following them.

After dipping earlier in the year, home prices are moving higher again -- and that may be prompting some potential buyers to get off the sidelines.

The monthly S&P Dow Jones Indices for July show home prices rose 3.2 percent on a year-over-year basis. Phoenix, Las Vegas, and Charlotte showed the biggest gains in the 20-City Composite Index.

In July, the median home in Phoenix increased in value by 5.8 percent year-over-year, followed by Las Vegas with a 4.7 percent increase. Charlotte was close behind with a 4.6 percent increase in the median home price.

"Year-over-year home prices continued to gain, but at ever more modest rates," said Philip Murphy, managing director and global head of Index Governance at S&P Dow Jones Indices. "Charlotte surpassed Tampa to join the top three cities, and Seattle may be turning around from its recent negative streak of YOY price changes, improving from -1.3 percent in June to -0.06 percent in July.

Still affordable

Despite the uptick in home values, affordability may be slightly improved because mortgage interest rates have trended lower recently. Mortgage News Daily reported this week that the most prevalent rate for a 30-year fixed-rate mortgage this week is 3.75 percent.

The Mortgage Bankers Association reports that applications for new home purchases surged 33 percent in August

Rising prices and still-low mortgage rates may be sending more buyers into the market, according to a new survey from the National Association of Realtors (NAR). The group reports that more than half of the consumers it surveyed said now is a good time to buy a home.

“Mortgage rates are at historically low levels, so I see no sign of the optimism about home buying fading,” said NAR’s chief economist Lawrence Yun. “However, the fact that slightly fewer are expressing strong intensity compared to recent prior quarters is implying some would-be buyers have concerns about the direction of the economy.”

Broken down demographically older consumers -- those born between 1925 and 1945 -- were most likely to believe it’s a good time to buy. Boomers were almost as bullish on the housing market.

Sales have slowed in recent months, and a major reason, housing economists say, is current homeowners have been reluctant to move and therefore have hesitated to put their homes on the market.

Consumers hoping to buy their first home, or perhaps move up, have been plagued by numerous headwinds over the last year, but those winds may be shifting.

In the last 18 months, mortgage interest rates have risen. Home inventory levels have fallen, which not only gives buyers fewer homes to choose from but puts upward pressure on prices. It’s enough to almost make you want to go on renting -- except that rents are also going up.

But here’s some welcome good news: that script is in the process of being flipped.

The Data & Analytics division of Black Knight, Inc.has released its latest Mortgage Monitor Report, which shows home affordability conditions have improved markedly. The rapid home appreciation growth of recent months has essentially flatlined. Even better, mortgage rates have begun to fall. Black Knight Data & Analytics President Ben Graboske says that combination has produced the best home affordability in 18 months.

"For much of the past year and a half, affordability pressures have put a damper on home price appreciation," said Graboske. "Indeed, the rate of annual home price growth has declined for 15 consecutive months.”

Improved affordability

Declining prices suggest that homes are staying on the market a little longer and are attracting fewer competing buyers, meaning fewer bidding wars.

“In November 2018 -- when rising interest rates hit a seven-year high and home price growth fell by half a percent in a single month -- it took 23.3 percent of the median household income to make the principal and interest payments when purchasing the average-priced home,” he said.  

The recent drop of 30-year mortgage rates to 3.75 percent means improved affordability for millions of would-be buyers. But how, exactly?

"Whereas nine states were less affordable than their long-term norms back in November -- a key driver behind the subsequent deceleration in home prices -- only California and Hawaii remained so as of July,” Graboske said.

Lower monthly payment

Even though the average home price has risen by more than $12,000 since November, lower interest rates more than make up the difference, meaning the average monthly payment is $108 lower when the buyer puts down 20 percent.

“Lower rates have also increased the buying power for prospective homebuyers looking to purchase the average-priced home by the equivalent of 15 percent, meaning that they could effectively buy $45,000 'more house' while still keeping their payments the same as they would have been last fall,” Graboske said.

National home prices have been skewed higher in recent years by huge increases in home prices on the West Coast. That price escalation has finally dissipated a bit, especially in California.

While prices nationally have leveled off, buyers should keep in mind that they may still be rising in some secondary markets that are only now beginning to heat up.

There’s good news for would-be homebuyers who have struggled to find the right house in their price range. Home values have fallen for two straight months, according to real estate marketplace Zillow.

Home values have declined slightly for two straight months. Should that trend continue, it could make homes more affordable for more consumers, especially since mortgage rates have declined at the same time.

By early 2019, home affordability had become an issue preventing some consumers from becoming homeowners. Before April, home values had gone up for 85 consecutive months, adding more than $78,000 to the price of a median home.

While home values were less in April than in March, and less in May than April, the median home still costs more than it did a year ago. But Zillow reports year-over-year appreciation is growing at a slower rate. 

A year ago, home values were growing at an annual rate of 7.5 percent. In May, they grew by 5.4 percent.

Positive for the market

Zillow Director of Economic Research Skylar Olsen says the slowdown in home values after such a long period of rising prices is actually good for the overall housing market.

"While the slowdown has been arguably abrupt, the soft declines over the past two months should not cause too much alarm,” Olsen said. 

“The aggressive pace of home values over the past several years was known to be unsustainable. Buyers simply couldn't afford it, so prices are correcting.”  

Rents are rising

Because homes became increasingly unaffordable, more consumers decided to remain renters. But the Zillow report shows renting a home is getting increasingly expensive.

The median monthly rent has now increased for seven months in a row, rising 2.7 percent in May to $1,479. Rents are growing faster now than a year ago in 28 of the top 35 markets, led by Las Vegas at 8.9 percent.

Because of that, more renters may now consider becoming homeowners, encouraged by a decline in mortgage rates. But Olsen says the dip in home values may not last.

“The significant drop in mortgage rates, as well as renewed rent growth, may help return U.S. housing values to positive appreciation earlier than otherwise," she said.

Another factor that could raise home values again is supply and demand. Inventory levels fell in May for the third straight month after the number of available homes rose slightly in the first two months of the year. A pick-up in home-buying activity could easily reduce inventory levels even more and push the median home price above its current $226, 800.

Nearly half of consumers who were adults in 2007 say their financial condition hasn’t improved since the Great Recession, according to a new survey from BankRate.

That recession began in late 2008 and lasted until June 2009. It was marked by the collapse of the housing market, a wave of home foreclosures, and a financial crisis that nearly brought down the world economy.

The survey found that 48 percent of the subjects who responded said they have seen no financial improvement in their lives as the economy has recovered. Twenty-five percent said their finances are about the same. Twenty-three percent say they are worse off financially.

The Great Recession resulted in a massive shrinking of the U.S. economy. Businesses reacted by scaling back their payrolls and almost overnight the unemployment rate hit 10 percent.

Housing market collapse

The housing market was flooded with homes for sale because it suddenly became very difficult to get a mortgage. Home values, which rose to unreasonable levels during the housing bubble, plummeted and many homeowners found they owed more than their homes were worth.

Today the unemployment rate is 3.6 percent and businesses complain they can’t fill open jobs. But salaries have grown slowly and haven’t kept pace with the rising cost of healthcare and education. The BankRate survey shows that some consumers have enjoyed the fruits of the recovery more than others.

“The echoes of the financial crisis and Great Recession remain very present in the financial lives of many Americans, despite the improvement in the broader economy,” said Mark Hamrick, Bankrate’s senior economic analyst. “While some have managed to prosper in the decade since, there are still tens of millions who are struggling to even get back to where they were before the economy took a turn for the worse.”

Minority homeowners

The survey results are in line with a recent Zillow survey that revealed many minority homeowners still have not recovered from the foreclosure crisis that was a huge catalyst for the Great Recession.

The price of residential real estate is even higher than it was during the housing bubble, but the Zillow report found home values have been much slower to recover in neighborhoods with large minority populations, remaining almost 10 percent below their peak values.

Zillow Senior Economist Sarah Mikhitarian noted that losing home value is almost always associated with a decline in net worth.

"The housing bust and foreclosure crisis that followed resulted in a disproportionate number of people of color losing not only the roof over their heads but the wealth -- and the opportunity to potentially build more -- that came with it," she said.

The BankRate survey shows 20 percent of consumers saw the value of their home go down during the Great Recession. Another 19 percent said they lost money in the stock market and incurred substantial debt.

Seven percent of people in the survey wiped out their emergency funds, while 6 percent tapped into their retirement savings.

A survey by LendingTree reveals the housing market continues to pose stiff challenges to first-time home buyers.

The online mortgage marketplace commissioned a poll of consumers who hope to purchase their first home in the next two years. It found a strong desire among millennials to own a home, but it also revealed gaps in knowledge about the process.

Most strikingly, the survey revealed a disconnect between what first-time buyers can afford to pay and the realities of today’s housing market. Two-thirds of the group said they have encountered a shortage of homes in their price range.

When asked what they thought they could pay, most said they were looking for a home priced at $150,000 or less. The median-priced U.S. home -- including new homes -- is now $300,000, well out of that stated price range.

Looking for a fixer-upper

Perhaps because of that, 85 percent said they would consider purchasing a fixer-upper if they could get it at a lower cost. That matches our reporting from earlier this week in which 60 percent of first-time buyers said they planned to purchase a home in need of renovation.

"The combination of rising home prices and limited entry-level homes for sale is prompting many home shoppers to consider homes that need renovating," said Danielle Hale, chief economist at realtor.com, which commissioned that research.

Besides affordability, the LendingTree study identified other issues many first-time buyers face. Nearly half had no idea that the closing process can be lengthy, taking an average of 43 days.

More than 25 percent of consumers hoping to purchase their first home have low credit scores, meaning they might not qualify and will pay a higher interest rate if they do. Only 15 percent had a credit score of 740 or higher.

Lack of funds

Finally, many would-be homeowners simply lack the income and savings to make a home purchase happen in the immediate future. Nearly half of the first-time buyers in the survey said looking for a home they can afford is the most stressful part of the process.

"Although the homeownership rate is lower among millennials than earlier generations at the same age, our research demonstrates that purchasing a home is still a significant milestone for many,” said Tendayi Kapfidze, chief economist at LendingTree. “However, strengthening your financial profile is crucial for those thinking of buying a home."  

Kapfidze suggests making a concerted effort to raise your credit score by paying all bills on time and paying down credit card balances. A higher score may make the approval process easier and will save money over the life of the mortgage by qualifying the applicant for a lower interest rate.

Consumers willing to move in order to purchase an affordable entry-level home have two good choices -- Tampa and Las Vegas.

Young people, especially, know full well the challenges of purchasing that first home. You have to save for a down payment while seeing your rent go up each year. With shrinking home listings, it’s sometimes hard to even find a home in your price range.

Then, when you do find a house you like and can afford, you face competition from other first-time buyers who might be willing to pay a little more than you are. But if you’re willing to move to another town, the housing experts at Zillow say both Tampa and Las Vegas offer some real opportunities.

Each year, Zillow ranks the 35 largest housing markets for being friendly to first-time buyers who are willing to pack up and move to get the home of their dreams -- at least the starter home of their dreams. For the second year in a row, Tampa came out on top.

First-time buyers need a market where there are plenty of smaller, less-expensive homes. These are exactly the types of homes that have been in short supply for the last five years, but Zillow says that trend appears to be reversing a bit. Home sales are down and the inventory of starter homes has finally begun to rise.

Shortage is easing

"The shortage of starter homes across the country is finally starting to ease, and that's good news for would-be first-time buyers who have been saving up to make the leap into homeownership," said Skylar Olsen, Zillow's director of economic research. "Unfortunately, prices of homes in the lower third of the market have risen so much in recent years that for many households' budgets they no longer qualify as affordable. But markets like Tampa and Las Vegas still provide plenty of bargains."

Both of those markets got hit hard during the housing crash a decade ago and prices, while recovering, are still below their housing bubble highs. Tampa has its share of million dollar homes, but it also has a relatively large inventory of smaller homes priced well below $200,000.

Inventories are up 1 percent

That trend could spread to other parts of the country in the months ahead. Zillow reports that slowing sales have driven up inventory levels by 1 percent over the last 12 months. According to the real estate marketplace, it’s the first time in five years that the spring home-buying season has begun with rising inventory levels.

In even better news for first-time buyers -- especially those with no desire to move to another town -- the inventory of less-expensive starter homes is leading the increase, rising 4.1 percent after being down 12.9 percent last year.

But Zillow cautions that even with this change, there still are not enough homes for sale to meet buyer demand, and the market remains competitive.

The housing market has been red hot in the last five years, but there have been signs it has cooled off in the last 12 months. A new academic study suggests it could get even cooler in the months ahead.

Researchers at Florida Atlantic University (FAU) and Florida International University have developed an index to track housing demand in the largest U.S. markets. It’s called the Beracha, Hardin & Johnson Buy vs. Rent (BH&J) Index.

In 19 of the 23 markets it tracks, it now shows “slight to significant” drops in demand from consumers interested in purchasing homes.

"Historical evidence indicates that home prices adjust to these directional pressures," said Ken Johnson, a real estate economist at FAU and one of the creators the index.

What it means for home prices

It stands to reason that a drop in demand would lead to a drop -- or at least a leveling off -- in home prices. Prices have risen consistently since the financial crisis because inventory levels -- the supply of available homes for sale -- has steadily decline.

But within the last year, the real estate industry has reported small increases in inventory levels. Real estate marketplace Zillow recently reported that buyers are are moving into the driver’s seat as the housing market slows, especially in some of the nation's hottest markets.

Zillow reports that market conditions now favor buyers more than they did a year ago, a conclusion it reached after analyzing the share of property listings with a price cut, the length of time it takes to sell a home, and the sale-to-list price ratio.

No surprise

"It is no surprise that the markets which pushed the bounds of affordability over the housing recovery are now experiencing significant cooling," said Skylar Olsen, Zillow director of economic research. "As down payments and mortgage payments far outpaced incomes, buyer demand eventually exhausted itself.”

The Florida researchers now conclude that many would-be buyers have left the market, content or resigned to rent a home for now. With fewer buyers ready to make a purchase, and with inventory levels slowly increasing, sellers may have to wait longer and accept less money to make a sale.

Of the 19 metro areas where housing demand is falling, the Florida researchers single out Dallas, Denver, and Houston as markets where demand is falling the fastest. They say demand is also falling in Kansas City, Pittsburgh, Seattle, San Francisco, and Miami, but at a slightly slower rate.

The number of homes for sale nationwide increased in January, reversing a trend that began in 2014 and has contributed to steadily rising home prices.

A new report from real estate marketplace Zillow shows housing inventory grew 1.2 percent last month, compared to January 2018. Theoretically, more homes for sale should balance out the supply and demand equation, which has favored sellers for more than four years.

But a closer look at the numbers suggests the average home buyer might not benefit from the shift, at least not yet. The Zillow report notes that the biggest increase in housing inventory occurred in five red-hot markets where homes are among the most expensive in the country and out of reach for the average buyer.

Housing inventory in more modestly priced markets like Pittsburgh and Baltimore continued to fall, with both those cities seeing the number of available homes on the market falling by 10 percent. In fact, property in the entry-level segment of the market -- the so-called “starter homes” -- is still not that easy to find.

Fewer homes mean higher prices

Inventory levels are closely tied to price increases. When the market is flooded with a glut of homes for sale, buyers have more negotiating leverage. But the reverse is true when there are fewer homes than people who want to buy them.

Zillow reports the median-priced home in the U.S. in January cost $225,300, up 7.5 percent year-over-year. Price increases are nearly twice as high in some of the nation’s more modestly priced housing markets like Indianapolis and Atlanta. Even so, Zillow senior economist Aaron Terrazas believes the current trend is encouraging.

"For four years, it felt like home buyers couldn't catch a break as for-sale inventory became tighter and tighter with each passing month," Terrazas said. "But during the second half of 2018, something shifted. Home buyers aren't out of the woods yet, but there is a glimmer of light on the horizon”

Hurdles for first-time buyers

The number of homes on the market is moving higher, albeit at a slow pace. And first-time buyers still face hurdles due to rising prices and mortgage rates that are higher than at this time a year ago. Terrazas concedes that demand still outweighs supply so that the market remains competitive.

First-time buyers who are still renting are also facing rising costs as the Zillow report shows rents grew on an annual basis for the third straight month. Rents rose in January by  2.1 percent over a year ago to a median of $1,468.

Home buyers have faced challenges over the last year because of rising mortgage rates, but those rates have dipped in the last month -- at least for buyers with the best credit.

According to the latest monthly report from LendingTree, buyers with the best credit profiles were offered 30-year fixed-rate mortgage rates that averaged 4.19 percent, down from 4.35 percent in December.

The difference of 16 basis points on a $200,000 mortgage lowers the monthly payment by $18.75.

There was a bigger drop for consumers refinancing their mortgage. The average offer to refinance an existing loan fell from 4.34 percent to 4.14 percent.

Credit scores a major factor

LendingTree is a mortgage marketplace. It allows homebuyers to enter their information, and then participating mortgage lenders try to offer the most competitive terms. The company says while credit scores are a major factor in getting a low interest rate, other factors are also considered, such as the type of property, the borrower’s income, and the loan-to-value ratio.

The average borrower also saw mortgage rates decline from December to January, but the average rate was higher than for those with the best credit profiles. The average mortgage rate for all borrowers was 4.98 percent, 19 basis points lower than in December.

Mortgage rates have risen over the past 12 months, but home buyers caught a break in January when the rate on the 10-year Treasury bond -- a key benchmark for mortgages -- dropped from 3.18 percent in December to 2.5 percent.

Credit scores made a big difference in the interest a home buyer paid in January. Buyers with a credit score of 760, which is considered “excellent,” secured a mortgage rate of 4.79 percent. Those with a score of 639 paid an average rate of 5.75 percent.

That’s a difference of $119 a month on a $200,000 mortgage, underscoring one of the major benefits of improving your credit score.

Lower rates good news for the market

Realtors are hopeful that a softening of mortgage rates could help housing recover from a lackluster 2018. Home prices continued to rise in most markets, but the pace of home sales declined.

Lawrence Yun, chief economist for the National Association of Realtors (NAR), said 2018 ended on a promising note, all things considered .

“Home prices continued to rise in the vast majority of markets but with inventory steadily increasing, home prices are, on average, rising at a slower and healthier pace,” Yun said.

Total existing-home sales, including single-family homes and condos, fell 1.8 percent to a seasonally adjusted annual rate of 5.180 million in the fourth quarter of last year, down from 5.273 million in the third quarter. That number is significantly lower than the sales pace during the fourth quarter of 2017.

Housing affordability remains a concern for many would-be home buyers, especially now that mortgage rates are going up. But a new report from real estate marketplace Zillow suggests one segment of the housing market is losing pricing power.

A Zillow analysis found that home builders lowered the price on their new inventory at a faster rate in the fourth quarter of 2018 than in the first quarter. The report found a quarter of new homes on the market in the last three months of the year had at least one price reduction. In the first quarter, only 19 percent had a price cut.

The same trend is also showing up in existing homes, though the statistics may appear misleading. Overall existing home values continue to rise, albeit at a slower rate.

Starter homes getting more expensive

When broken down by price range, entry-level starter homes continue to go up in value while more expensive homes have experienced more price cuts, just as new homes have. That’s because there are a lot more consumers who can only afford an entry-level home, while there is a limited number for sale.

New construction must compete with more expensive existing homes, for which there are fewer buyers. With the law of supply and demand asserting itself, prices have to come down.

Prices have risen since the housing recovery in large part because of tight inventories. As the economy improved and more people wanted to buy homes, they found a declining number of homes in the entry-level, moderately-priced segment while there were plenty of expensive homes.

Housing shortage continues

Home builders are producing only about half as many new homes as they did before the housing crash, and those tend to be large and expensive. As we reported in 2017, home building activity wasn’t alleviating the housing shortage because most first-time home buyers couldn’t afford them.

Homebuilders have cited higher costs for materials, labor, and land to explain their focus on more expensive homes. While homebuilders no doubt could easily sell small homes priced under $200,000, builders say they wouldn’t be profitable.

“Facing high and rising construction costs, builders have few options but to target upmarket while homebuyers are increasingly squeezed by tight affordability and rising interest rates,” said Zillow Senior Economist Aaron Terrazas.

But Terrazas says the price cutting trend might not last. He says builders appear content to build fewer new homes and charge more for them. With fewer new homes in the pipeline, the price cuts may not last.

The housing market has cooled in recent months with home sales slowing from their redhot pace, but the prices consumers are paying for homes is still going up.

The monthly S&P CoreLogic Case-Shiller Index shows home prices rose an average of 5.5 percent in October even as pending home sales, as measured by the National Association of Realtors (NAR), fell 2.6 percent.

Lawrence Yun, NAR’s chief economist, said that ten straight months of decline certainly isn’t good news for the housing market.

“The recent rise in mortgage rates have reduced the pool of eligible homebuyers,” he said.

But that hasn’t stopped home prices from rising. The Index gauges housing in all nine U.S. Census divisions and found October’s rise in the median home price matched September’s results.

Las Vegas leads the way

Prices rose the most in Las Vegas, San Francisco, and Phoenix. The median price in Las Vegas was up 12.8 percent, followed by San Francisco at 7.7 percent and Phoenix close behind with a 7.6 percent year-over-year increase.

Even measured on a month-to-month basis, the price of putting a roof over your head is climbing, albeit at a much slower rate. October home prices were 0.1 percent higher than they were in September.

Normally, when sales slow down so do prices, but this market is different. Since the recovery from the 2008 housing crash, the number of available homes has steadily declined. There is still enough demand for homes to support the value of those that are available, and in some cases push them higher.

Mortgage rates are now a factor

Rising mortgage rates also create headwinds for potential buyers, making monthly mortgage payments that much more expensive. David Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices, says that means homes sales are likely to remain on their downward trend.

"The combination of higher mortgage rates and higher home prices rising faster than incomes and wages means fewer people can afford to buy a house,” Blitzer said. “Fixed rate 30-year mortgages are currently 4.75 percent, up from 4 percent one year earlier.”

At the same time, home prices are up 54 percent since bottoming in 2012. Consumers who hope to sell their homes in 2019 may find they have to be more flexible on price. Potential buyers, meanwhile, may have a little more bargaining power.

The Federal Housing Finance Agency (FHFA) has announced it is raising the maximum conforming loan limits for mortgages Fannie Mae and Freddie Mac purchase in 2019 from $453,100 to $484,350.

It follows years of rising home prices, which has caused the previous maximum to fall below what many homes sell for in the nation's most expensive housing markets. It's the third increase since 2006.

In some markets, the cut-off will be even higher. In Los Angeles, New York, San Francisco, and Washington, D.C., the maximum loan limit will be $726,525, which is 150 percent of $484,350. Meanwhile, limits will rise in all but 47 counties in the country.

The loan limits define the maximum one-unit single-family mortgage amounts that Fannie Mae and Freddie Mac can finance. Real estate professionals say they are also used to define loan limits under FHA programs.

'Keeping the American Dream within reach'

The move won praise from the National Association of Realtors (NAR).

"The National Association of Realtors is pleased to see the Federal Housing Finance Agency raise its national conforming loan limits for 2019," said NAR President John Smaby. "Today's decision reflects rising or near record high home prices in many U.S. markets, and the move helps keep the American Dream within reach for countless families working with Fannie Mae and Freddie Mac."

Smarby says home prices have risen so much in some markets that the higher loan limits are necessary to keep the market from grinding to a halt.

"Without this assurance that loan limits keep up with home price growth, borrowers across the country risk being pushed out of the market altogether as mortgage rates and rising home prices continue to hold back potential homebuyers," he said.

Limits will vary depending upon location

Conforming loan limits will vary based on property values in certain areas. FHFA has produced this website to assist consumers in learning what the loan limits are in their particular county.

The update is normally an annual affair. FHFA updates the national and high-cost limits based on the FHFA's national price index.

NAR says the market for private financing has improved in recent years, but it is still limited by the aftermath of the Great Recession when mortgage lenders implemented more stringent lending standards.

Consumers who hope to purchase homes usually face more onerous standards if they do not possess excellent credit.

The run-up in home prices, fed by rising demand and increasing supply, is over declares The Wall Street Journal.

In a report Tuesday, the newspaper focused on the Dallas, Texas market where it notes that home builders are desperate and going to extreme measures to sell homes.

"In the high-end subdivisions in the suburb of Frisco, builders are cutting prices on new homes by up to $150,000," The Journal reports. "On one street alone, $4 million of new homes sat empty on a visit earlier this month. Some home builders are so desperate to attract interest they are offering agents the chance to win Louis Vuitton handbags or Super Bowl tickets with round-trip airfare if their clients buy a home. Yet fresh-baked cookies sit uneaten at sparsely attended open houses."

The numbers in that paragraph may offer a clue to consumers' declining interest in buying a home. In short, the homes have gotten too expensive. If a builder can cut the price by $150,000, chances are it was a pretty expensive home to begin with.

In the last nine years, home prices have made a remarkable recovery from the housing crash, when a wave of subprime foreclosures cut the value of homes in some markets in half. But unlike the housing bubble period when cheap money inflated home prices, the recovery was led by supply and demand. There just weren't enough homes for sale.

More data

Real estate marketplace Zillow has released data suggesting this trend is reversing on a nationwide basis. After months of declining inventory, October saw an increase in the number of homes on the market.

The number of available homes increased by 3 percent year-over-year, making it easier for someone to buy a home. Over the last three years, buyers in the most popular markets have been frustrated by a lack of choice and by having to outbid other buyers when they were able to find an acceptable home.

"In yet another sign that the housing market is cooling, we're finally starting to see inventory return after several years of annual declines," said Zillow Senior Economist Aaron Terrazas. "The combination of tight supply and strong demand have pushed up home values in recent years, but markets always ebb and flow and there is no doubt that the tides that have buoyed sellers are shifting."

Not yet a buyer’s market

That's not to say that it has become a buyers' market. The numbers show that inventory is increasing the most in places where homes cost the most. Buyers are balking when homes approach or exceed $1 million. Home builders that have ignored the entry-level market to focus on high-end homes are likely to feel the most pain when these expensive homes sit unsold.

The inventory of entry-level homes remains fairly low making it more difficult for buyers to find the home they want. Now that mortgage rates are rising, some potential buyers in that market segment may be less inclined to become homeowners, especially since Zillow reports rents have flattened or even fallen in some markets.

Meanwhile, the build-up in home inventory has not yet reduced home values. Zillow reports home value appreciation held steady in October at 7.7 percent, with the U.S. median home value at $221,500.

There continues to be warnings about the state of the housing market. The latest warning comes from the real estate industry itself.

Reacting to another reported rise in home prices in March, Lawrence Yun, chief economist for the National Association of Realtors (NAR), said the 6.5 percent increase in home prices “is simply not sustainable,” because prices are growing much faster than consumers' income.

“From the cyclical low point in home prices six years ago, a typical home price has increased by 48 percent, while the average wage rate has grown by only 14%,” Yun said. “Rising interest rates also do not help with affordability.”

The March price report from S&P/Case Shiller showed the 6.5 percent increase in home prices matched the price increase for February. The hottest real estate markets showed the biggest gains.

Seattle, Las Vegas, and San Francisco once again reported the highest year-over-year gains among the 20 cities in the survey. In March, Seattle recorded a 13 percent year-over-year price increase, while Las Vegas had a 12.4 percent increase.

Another housing bubble?

The rapid increase in home prices has triggered warnings of another housing bubble, like the one that crashed the housing market in late 2008. However, there are important distinctions between the two.

The early 2000s housing bubble was fueled by extremely relaxed mortgage lending standards, resulting in a huge increase in demand for housing, often from consumers with poor credit who got stuck with subprime mortgages. When millions of these subprime loans went into foreclosure, it triggered a financial crisis as well as a housing crisis.

Today, the situation is very different. There is strong demand from well-qualified buyers, but a shortage of homes to purchase. This demand and supply imbalance is what is sending home prices skyrocketing.

Unfortunately, the result could be the same. If home prices not only level off, but actually retreat, it could leave some consumers – who purchased their homes at the very top of the market – owing more than their homes are worth.

No one is suggesting the result could be as catastrophic as a decade ago, but if you happen to be one of those who pay top dollar for your home, it certainly won't turn out to be a good investment.

More homebuilding needed

Yun says the way out of this situation is to increase the supply of homes for sale. The best way to do that, he says, is simply build more homes.

“Homebuilding will be the key as to how the housing market performs in the upcoming years,” Yun said.

Weakening demand could also help. If fewer people are competing to purchase homes, there is less upward pressure on home prices. There's evidence that might be happening.

A new report from real estate brokerage firm Redfin shows its Housing Demand Index dropped 13 percent from March to April for the third consecutive monthly decline. Redfin chief economist Nela Richardson believes the drop in demand is directly tied to lower inventory levels. With fewer homes to choose from, more would-be homebuyers are resigning themselves to renting.

Sales of existing homes took a tumble last month, flashing a possible warning sign for the housing market.

In its monthly report, the National Association of Realtors (NAR) said existing home sales fell 2.5 percent in April from March. Sales are off 14 percent from April 2017, with year-over-year sales declining for two consecutive months.

Lawrence Yun, NAR's chief economist, says it's not because people don't want to buy homes, they just can't find homes to buy.

"The root cause of the underperforming sales activity in much of the country so far this year continues to be the utter lack of available listings on the market to meet the strong demand for buying a home," Yun said.

Other headwinds

Would-be buyers are facing other headwinds. Interest rates on mortgages are climbing at the fastest pace in nearly a half century, according to Freddie Mac. The average rate on a 30-year fixed-rate mortgage is 4.66 percent, up from 4.61 percent last week. A year ago, it was 3.95 percent.

“While this spring’s sudden rise in mortgage rates are taking up a good chunk of the conversation, it’s the stubbornly low inventory levels in much of the country that are preventing sales from really taking off like they should be,” said Freddie Mac Chief Economist Sam Khater.

The low inventory of houses for sale not only makes it harder to find a home to purchase, it makes the ones that are available more expensive. Zillow's April Real Estate Market Report shows home values are rising at the fastest rate since just before the housing market crash.

Median home value rises 8.7 percent

Over the last 12 months, Zillow says national home values rose 8.7 percent, to a median of $215,600. It's not any cheaper to rent. Zillow reports median rents are up 2.5 percent over the last 12 months, to a median payment of $1,449.

The NAR report has some good news, however. Total housing inventory at the end of April was up nearly 10 percent, but it was still down 6.3 percent from the end of April 2017. Yun says the multiple factors affecting the market continue to pose trouble for people who want to buy a home.

"Realtors say the healthy economy and job market are keeping buyers in the market for now even as they face rising mortgage rates,” he said. “However, inventory shortages are even worse than in recent years, and home prices keep climbing above what many home shoppers are able to afford."

Despite fewer homes for sale, buyers snapped up more new and existing homes last month.

The National Association of Realtors (NAR) reports sales of existing homes rose 1.1 percent over February. The U.S. Census Bureau reports new home sales surged 4 percent month-over-month.

However, both housing categories were lower year-over-year, primarily because there weren't enough available homes on the market to meet demand.

Lawrence Yun, NAR's chief economist, says the March gain was fueled by a dramatic rise in the Northeast and Midwest, which he attributes to February sales delayed by bad weather.

'Supply is woefully low'

"The unwelcoming news is that while the healthy economy is generating sustained interest in buying a home this spring, sales are lagging year ago levels because supply is woefully low and home prices keep climbing above what some would-be buyers can afford," Yun said.

The median existing-home price for all housing types in March was $250,400, up 5.8 percent from March 2017. It was the 73rd straight month that existing home prices have advanced year-over-year.

Meanwhile, new home sales recorded a sharp increase in March, rising 4 percent. But while existing homes sold at an annual rate of 5.72 million, new homes closed at an annual rate of only 694,000.

Part of the disparity can be explained by the fact that there are a lot more existing homes than new homes. But price might also have something to do with it. While the median price of an existing home was around $250,000, the median cost of of a new home in March was $337,200 – well above the range most first-time buyers find affordable.

Since the financial crisis, most homebuilders have focused on more expensive homes, complaining that high land and labor costs make building cheaper, entry-level homes unprofitable.

Problem for buyers

The problem for buyers is fewer homes to choose from, while those homes that are available continue to go up in price.

Renting is no bargain either. According to ApartmentList, the April rent index rose 0.2 percent – or 2.4 percent on an annual basis.

"Although the strong job market and recent tax cuts are boosting the incomes of many households, speedy price growth is squeezing overall affordability in several markets – especially those out West," Yun said.

Total inventory existing homes rose 5.7 percent in March, which is good news for spring home shoppers. But Yun says that number is still 7.2 percent below the inventory level in March 2017.

With the spring homebuying season just getting underway, home shoppers are facing a double challenge. There are fewer homes to buy and they cost more. In fact, there is new evidence suggesting that the average wage-earner is getting priced out of the housing market.

This week, the S&P CoreLogic Case-Shiller Indices showed home prices rose in January in all 20 monitored real estate markets, with prices rising 6.2 percent year-over-year. Seattle, Las Vegas, and San Francisco saw the biggest year-over-year gains in the 20 cities.

Home prices in Seattle made the biggest jump, rising 12.9 percent. Las Vegas and San Francisco were not far behind, with gains of 11.1 percent and 10.2 percent respectively.

No longer affordable

Attom Data Solutions reports additional discouraging news for buyers. In 68 percent of the 446 counties it analyzed, it found that the median-priced home is no longer affordable for the average wage-earner.

The firm reached that conclusion by calculating the amount of income needed to make monthly house payments, then assumed a 3 percent down payment and a 28 percent maximum "front-end" debt-to-income ratio.

Among the markets where the average consumer can no longer afford the median-priced home are Los Angeles County, Calif.; Maricopa County (Phoenix), Ariz.; San Diego County, Calif.; Orange County, Calif.; and Miami-Dade County, Fla.

The report found the average consumer can still afford a median-priced home in Cook County (Chicago), Ill.; Harris County (Houston), Tex.; Dallas County, Tex.; Wayne County (Detroit), Mich.; and Philadelphia County, Pa.

'Affordability aftershocks'

"Coastal markets are the epicenter of the U.S. home affordability crisis, but affordability aftershocks are now being felt further inland as housing refugees migrate from the high-cost coastal markets to lower-priced markets in the middle of the country where good jobs are available," said Daren Blomquist, senior vice president with ATTOM Data Solutions. "That in turn is pushing home prices above historically normal affordability limits in those middle-America markets."

The problem appears to stem from increased competition for a limited number of homes. David Blitzer, managing director at S&P Dow Jones Indices, says fewer homes for sale is one of two problems facing the housing market. The other is a low vacancy rate.

"The current months-supply -- how many months at the current sales rate would be needed to absorb homes currently for sale -- is 3.4," Blitzer said. "The average since 2000 is 6.0 months, and the high in July 2010 was 11.9."

But Blitzer disagrees that affordability is a concern. He says his data shows that a family with median income can still afford a mortgage for a median-priced home. They'll just have fewer to choose from.

Home prices closed out 2017 with a 6.2 percent year-over-year increase, according to the latest accounting by the S&P CoreLogic Case-Shiller Indices.

Rising home prices, coupled with the reduction of some homeownership tax benefits, could bring about significant changes to the 2018 housing market. Javier Vivas, Director, Economic Research at realtor.com, sees housing markets with both high home prices and high taxes as facing some of the biggest challenges.

"Constricted affordability will continue to be a recurring pattern in the housing market in 2018, and we anticipate growth to be concentrated around areas where home prices still have room to grow," Vivas told ConsumerAffairs.

Possible migration

For example, there will be increasing incentives for homeowners in some states, such as New York and California, to sell their homes and move to the Sunbelt or Midwest where taxes (and home prices) are lower.

That's because starting this year, the tax deduction for state and local taxes is capped at $10,000. In markets where the average home is $500,000 or more, homeowners may pay a lot more than that in property taxes.

Pricier housing markets also tend to be in states where the state tax rate is high. Where homeowners could offset their expensive homes by writing off state and local taxes, some homeowners may no longer have that option.

Vivas believes that could result in what real estate economists see as a migration–homeowners leaving expensive markets for cities where costs are lower.

"However, lower home prices are just one part of the equation," Vivas said. "For markets to see a constant influx of new residents, there must also be a steady stream of jobs and positive economic momentum."

He notes the top 10 housing markets predicted for growth in the realtor.com 2018 housing forecast have seen employment and population grow at double the rate of the rest of the country.

Where the population may grow

That forecast predicts southern cities will see the biggest growth this year, led by Tulsa, Okla., Little Rock, Ark., and Charlotte, N.C.

A declining inventory of homes for sale has been a major factor in driving up home prices since 2015. With fewer homes for sale, sellers can set–and usually get–higher prices.

"While the total number of homes for sale will likely stay constricted for much of the year, we actually expect inventory declines to decelerate slowly throughout 2018," Vivas said.

But that might not help first-time homebuyers. Vivas believes the majority of this inventory growth may come in the mid-to-upper tier price points, including homes priced above $350,000.

For consumers looking for that first home, Vivas says 2018 may prove to be as challenging as 2017, because "the levels of starter homes have been significantly depleted."

In a growing number of housing markets, it makes more economic sense to rent a home than buy it, according to a new analysis by real estate marketplace realtor.com.

The authors of the report measured the various costs of renting a home as opposed to owning it and found the gap favoring renting is getting wider. In 57 of the 59 largest housing markets, they say you are better off renting than buying.

That's a big change from just eight years ago, when the financial crisis resulted in a big drop in the number of people buying homes and a surge in the number of renters. Demand for apartments and rental houses drove up rents while home prices and mortgage rates sank.

Rents have leveled off

Today, home prices are continuing to go up while rents have leveled off. On a national basis, the authors estimate that the percentage of household income required to buy a home has increased by 1.4 percent over the last 12 months.

At the same time, the average rent has fallen by 0.9 percent. This gap is widening the fastest where home values have shown significant growth.

"New single-family home construction has lagged demand, and with a large share of the boomer generation staying in place rather than sizing down, we've seen a historic shortage of for-sale inventory this year, leading to higher home prices," Chris Salviati, a real estate economist with ApartmentList.com, told ConsumerAffairs.

"On the flip side, this year has seen a boom in multi-family completions in many markets, which has tempered rent growth."

In the past, it was assumed that buying a home was a better financial decision because you were building equity. Homebuyers thought that their real estate value would gain value as they made payments to reduce their mortgage value.

That assumption was turned upside down in 2008 when the housing bubble popped and home values dropped sharply, leaving millions of recent homebuyers owing more than their homes were worth.

But home values have bounced back over the last five years, helped by an improving economy and a shortage of homes for sale. With home prices back near their historic highs, Congress is poised to make owning a home even more expensive.

Tax bill’s impact

The tax reform bill headed for a final vote this week caps mortgage interest and state and local tax deductions, two tax breaks that have made homeownership more affordable. The measure also doubles the Standard Deductions, meaning it's less advantageous for homeowners to itemize deductions.

"By reducing the value of these itemized deductions and simultaneously doubling the standard deduction, the bill significantly reduces the share of households that would see a tax benefit from owning a home," Salviati said.

Salviati also notes that the tax bill, as currently written, does not affect the mortgage deductions for homeowners who currently receive it. That, he says, could serve as an incentive for these homeowners not to sell, which would further increase the shortage of available homes and make them more expensive.

As Senate and House conferees work on reconciling their two versions of the tax bill, real estate industry leaders are voicing concerns about how the final version could affect the housing market.

That's because both versions make changes to the longstanding tax benefits for homeowners, and Danielle Hale, chief economist at realtor.com, warns a lot of homeowners will see their taxes rise.

"One of the advantages for homeowners under current law is they can take advantage of the mortgage interest deduction," Hale told ConsumerAffairs. "The interest that they pay on a mortgage can be written off on their taxes so that it subtracts from their income and lowers their taxes."

Lower taxes mean more money that's available for a monthly mortgage payment, and Hale says if you have more money at your disposal, you can afford to pay more for a home. If you have less money, you can't afford as much house, and that is likely to put downward pressure on prices.

Changes to the mortgage interest deduction

The mortgage interest deduction could change drastically in the final version of the tax bill. The Senate bill leaves the maximum interest deduction at $1,000,000, but the House version drops it to $500,000.

Hale says that reduction would likely have little to no effect in markets where the median home sells for around $250,000; most homeowners in that segment would still be able to write off all their interest. But it would likely affect homeowners in the most expensive markets.

Hale says another change, present in both versions of the bill, would actually reduce the value of the mortgage interest deduction to millions of middle income homeowners.

"Under current law, in order for it to make sense to itemize your deductions, your total deductions need to be more than the standard deduction, which right now is around $12,000 for couples," Hale said.

If a couple had $10,000 in interest, a couple of thousand dollars in state and local taxes, several thousand dollars in other assorted deductions, it makes sense to itemize those deductions on their tax return.

Rising standard deduction

But in both versions of the tax bill, the standard deduction rises to $24,000 for a couple, meaning many homeowners would pay less tax if they just claimed the standard deduction. That change makes the mortgage interest deduction less valuable.

Both versions of the bill cap the current deduction for state and local taxes at $10,000. Hale says that will hit homeowners who live in high-tax states like California, New York, and New Jersey.

It will also hit homeowners in markets where property values are high, since expensive homes usually have high property taxes. The result will be higher taxes because a home will not be the tax shelter that it is now.

Since the end of World War II government policy has encouraged homeownership. Hale says there is a very good reason for that.

"Homeownership is one of those things that government has specifically tried to encourage because it has what economists call positive externalities, which means homeownership provides benefits, not just to the people who own the homes but to the greater community as well," she said.

Hale says she doesn't think the changes in the two versions of the tax bill diminishes the importance politicians place on homeownership, but she admits they are "promoting it less directly" in the tax bill.

Home prices have returned to the lofty levels they reached 10 years ago, just before the market crashed in a wave of foreclosures. But today's housing market is very different from the one in 2006, according to Danielle Hale, chief economist at realtor.com.

In 2006, the housing market was fueled by plentiful mortgage money and lenient underwriting standards, meaning consumers who couldn't afford homes were still able to borrow money to buy them.

Builders put up new homes at a feverish pace because they would quickly sell. But the housing bubble popped when millions of homes went into foreclosure, creating a sudden glut in the housing market. Hale says today's housing market is completely different because it’s much safer for consumers.

"We've had a lot of household formation in the last few years and that's creating demand," Hale told ConsumerAffairs. "The limited supply from the lack of construction is also helping keep prices high. And the backdrop is a really strong economy, so all the factors that are driving today's market are sound economic fundamentals."

Supply and demand

Last year the U.S. median home price reached $236,000, up two percent from the 2006 housing bubble peak. Most of the nation's largest metro areas have seen home prices get back to pre-recession levels.

Austin, Texas leads the nation with a 63 percent increase in home values over the last decade. The median home value in Denver has risen 54 percent over that time and the median home price in Dallas is now 52 percent higher.

A few of the markets hit hardest by the foreclosure crisis -- Las Vegas, Tucson, Ariz., and Riverside, Calif., -- were still more than 20 percent below 2006 price levels at the end of last year.

Housing shortage

Hale says there is a housing shortage in some parts of the country because builders have not built as many new homes; construction is about 50 percent of what it was in 2006.

Hale says builders may be treading more cautiously or finding it more difficult to get financing. Much of the new construction is for expensive homes, not the entry-level market where there is the most demand.

"It's difficult for builders to target that entry level price point, but the builders who have been able to do so have been successful," Hale said.

Another major difference between the housing market then and now is the screening process. To qualify for a mortgage today, borrowers must be able to document their ability to repay the loan.

Hale thinks the lending standards may be tighter than necessary but says they have contributed to the health of today's housing market. According to Attom Data Solutions, foreclosure activity in April hit its lowest level since 2005.

"As we compare today's market dynamics to those of a decade ago, it's important to remember rising prices didn't cause the housing crash," Hale said.

She says high prices during the housing bubble were fueled by subprime and low documentation mortgages, market conditions that do not exist today.

Homes across the U.S. continued to rise in value during the second quarter of 2017.

The Federal Housing Finance Agency (FHFA) reports its House Price Index (HPI) was up 1.6% from the previous three-month period and 6.6% from the second quarter of 2016.

"U.S. house prices rose in most states during the second quarter," said FHFA Senior Economist William Doerner. "New home sales are climbing but, relative to the overall population, they still remain low from a historical perspective. The tight inventory is a major explanation for why house prices have been increasing every quarter over the last six years."

Report highlights

Home prices rose in 48 states and the District of Columbia between the second quarter of 2016 and the second quarter of 2017. The top five states in annual appreciation were: 1) Washington 12.4 %; 2) Colorado 10.4%; 3) Idaho 10.3%; 4) Florida 9.4%; and 5) Utah 9.2%.

Among the 100 largest metropolitan areas in the U.S., annual price increases were greatest in the Seattle-Bellevue-Everett, Wash, where they rose 15.7%. Prices were weakest in New Haven-Milford, Conn., where they inched up just 0.1%.

Of the nine census divisions, the Pacific division enjoyed the strongest increase in the second quarter, posting a 2.6% quarterly advance and a 8.9% increase since the second quarter of last year. House price appreciation was weakest in the Middle Atlantic division, where were up 0.8% from the last quarter.

The HPI is calculated using home sales price information from mortgages sold to, or guaranteed by, Fannie Mae and Freddie Mac.

The complete report is available on the FHFA website.

The drop in home sales in recent months has been explained by a lack of inventory. If there are fewer houses for sales, it stands to reason that fewer houses are going to be sold.

But real estate marketplace Zillow reports there may be another reason. Houses are simply not as affordable as they once were, especially in the nation's largest housing markets.

Zillow looked at the top 35 housing markets and discovered that to buy a median-valued home in more than half of them will require a bigger chunk of a homeowner's paycheck than in the past. In addition, the larger down payment that come with a more expensive purchase is also proving to be a roadblock for many would-be buyers.

This is not a situation that exists everywhere. Nationwide, Zillow reports the median-priced home for sales only requires 20% of the median income.

Down payment a top concern

"Homes have gotten so expensive in many major cities that even with low mortgage rates, monthly costs for homes that are currently for sale are starting to be unaffordable," said Zillow Chief Economist Dr. Svenja Gudell. "Down payments are a top concern for today's homebuyers, but the reality is that monthly costs are becoming unaffordable as well.”

The falling inventory of homes, a reason for lower sales, is also contributing to higher home prices. It's a simple matter of supply and demand. With a smaller supply of homes, sellers can ask for more, and if they are in a desirable housing market, usually get it.

The Zillow analysis found that the Los Angeles housing market requires the largest share of income to make the monthly mortgage payment on a median-priced home. The typical LA area home requires 46.8% of the median income for the area. That's up from 35.2% before the housing bubble.

Cleveland is even more affordable than before

At the other end of the scale, the median-priced home in the Cleveland area is very affordable. The median list price of $144,000 requires only 12.7% of the median income to make the payments. Before the housing crash, Cleveland homeowners were paying 20% of their income to pay for the typical home.

Zillow also reports nationwide, valuations seem to have gotten out of whack. The nationwide median home value is $197,000. Yet when you single out all the homes for sale, the median asking price is nearly $247,000.

This situation exists at a time when mortgage rates are historically low. After rising above the 4% mark early in the year, the average rate on a 30-year fixed-rate mortgage has fallen below 4% again. The affordability issue would likely be much worse if mortgage rates were to approach 6%, where they were during much of the housing bubble.

The increases in home prices keep on coming.

Property information provider CoreLogic reports its Home Price Index (HPI) shows housing prices across the U.S. were up 7% in February from the same month a year ago.

On a month-over-month basis, prices rose 1%.

“Home prices and rents have risen the most in local markets with high demand and limited supply, such as Seattle, Portland and Denver,” said CoreLogic Chief Economist Dr. Frank Nothaft. “The rise in housing costs has been largest for lower-tier-priced homes.”

According to Nothaft, from December to February in Seattle, the HPI shot up 12% and the CoreLogic single-family rent index jumped 6% percent for all price tiers compared with the same period a year earlier.

He notes, though, that when looking at only lower-cost homes in Seattle, the price increase was 13% and the rent increase was 7%.

In the year ahead

The CoreLogic HPI Forecast indicates home prices will increase by 4.7 percent on a year-over-year basis from February 2017 to February 2018, and on a month-over-month basis home prices are expected to increase by 0.4 percent from February 2017 to March 2017.

“Home prices continue to grow at a torrid pace so far in 2017 and these gains are likely to continue well into the future,” said CoreLogic President and CEO Frank Martell. “Home prices are at peak levels in many major markets and the appreciation is being driven by a number of dynamics -- high demand, stronger employment, lean supplies and affordability -- that will continue to play out in the coming years.”

Home price gains continued in January on both a year-over-year and month-over-month basis.

According to the S&P CoreLogic Case-Shiller Indices, the National Home Price NSA Index, covering all nine U.S. census divisions, jumped 5.9% from a year earlier, setting a 31-month high.

The 10-City Composite was up 5.1%, and the 20-City Composite reported a rise of 5.7%.

Seattle, Portland, and Denver had the highest year-over-year gains among the 20 cities over each of the last 12 months. Seattle led the way in January with an 11.3% year-over-year price increase, followed by Portland (+9.7%) and Denver (+9.2%).

Twelve cities reported greater price increases in the year ending January 2017 versus the year ending December 2016.

“Housing and home prices continue on a generally positive upward trend,” said David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices.

“The recent action by the Federal Reserve raising the target for the Fed funds rate by a quarter percentage point is expected to add less than a quarter percentage point to mortgage rates in the near future. Given the market’s current strength and the economy, the small increase in interest rates isn’t expected to dampen home buying. If we see three or four additional increases this year, rising mortgage rates could become a concern."

Month-over-month

Before seasonal adjustment, the National Index posted a month-over-month gain of 0.2% in January. The 10-City Composite was up 0.3% and the 20-City Composite inched ahead 0.2%.

After seasonal adjustment, the National Index recorded a 0.6% month-over-month increase, while both the 10-City and 20-City Composites each reported a 0.9% advance. Thirteen of 20 cities reported increases in January before seasonal adjustment; after seasonal adjustment, 19 cities saw prices rise.

“While prices vary month-to-month and across the country, the national price trend has been positive since the first quarter of 2012,” said Blitzer. “Tight supplies and rising prices may be deterring some people from trading up to a larger house, further aggravating supplies because fewer people are selling their homes. At some point, this process will force prices to level off and decline -- however we don’t appear to be there yet.” 

Housing prices across the U.S. were unchanged in January, according to the Federal Housing Finance Agency (FHFA) seasonally adjusted monthly House Price Index (HPI).

This is just the second month since early 2012 that the HPI has failed to increase. The other occurrence was in November, 2013. The previously reported December HPI increase of 0.4% was unrevised.

On a year-over-year basis -- from January 2016 to January 2017 -- house prices were up 5.7%.

The FHFA monthly HPI is calculated using home sales price information from mortgages sold to, or guaranteed by, Fannie Mae and Freddie Mac.

Regional performance

For the nine census divisions, seasonally adjusted monthly price changes from December, 2016 to January, 2017 ranged from -2.0% in the East South Central division to +0.6 percent in the Pacific division.

The 12-month changes were all positive, ranging from +3.5% in the East South Central division to +8.3% in the Mountain division.

The complete report may be found on the FHFA website

There's a good chance the value of your home went up during January.

Property information provider CoreLogic reports its Home Price Index (HPI) shows home prices nationwide -- including distressed sales -- shot up 6.9% in January from the same month a year ago and inched ahead 0.7% from December 2016.

“With lean for-sale inventories and low rental vacancy rates, many markets have seen housing prices outpace inflation,” said CoreLogic Chief Economist Dr. Frank Nothaft.

Looking ahead

The increase in values seems likely to continue.

“The spring home buying season is shaping up to be one of the strongest in recent memory,” said Frank Martell, president and CEO of CoreLogic. “A potent mix of progressive economic recovery, demographics, tight housing stocks and continued low mortgage rates are expected to support this robust market outlook for the foreseeable future.”

According to the CoreLogic HPI Forecast, home prices should advance of 4.8% from January 2017 to January 2018 and increase 0.1% from January to February.

Home prices across the U.S. edged up 0.5% from October to November rose in November, and posted a year-over-year advance of 6.1%.

At the same time, the Federal Housing Finance Agency (FHFA) revised its monthly House Price Index (HPI) downward to show a gain of 0.3% instead of the 0.4% increase initially reported.

Regional breakdown

For the nine census divisions, monthly price changes ranged from -0.2% in the South Atlantic division to +1.5% in the Pacific division.

The 12-month changes were all positive, ranging from +4.7% in the Middle Atlantic division to +7.7% in the Pacific division.

The monthly HPI is calculated using home sales price information from mortgages sold to, or guaranteed by, Fannie Mae and Freddie Mac.

The complete report may be found on the FHFA website.

Jobless claims

An increase last week in the number of people filing first-time applications for state unemployment benefits.

The Department of Labor (DOL) reports initial jobless claims rose by 22,000 in the week ending January 21 to a seasonally adjusted 259,000. The previous week's level was revised up by 3,000 to 237,000.

The four-week moving average was down by 2,000 from the previous week to 245,500 -- the lowest level since November 3, 1973, when it was 244,000.

The four-week moving average, due to its relative lack of volatility, is considered a more accurate gauge of the labor market.

The full report is available on the DOL website.

Home prices in September continued their rise across the country over the last 12 months.

According to the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, which covers all nine U.S. census divisions, the National index was up 5.5% on a year-over-year basis.

The 10-City Composite jumped 4.3%, while the 20-City Composite was up 5.1%.

Seattle, Portland, and Denver enjoyed the highest year-over-year gains among the 20 cities over each of the last eight months. Seattle led the way with an 11.0% year-over-year increase, followed by Portland at 10.9% and Denver with an 8.7% advance.

In all, 12 cities reported greater price increases in the year ending September 2016 versus the year ending August 2016.

“The new peak set by the S&P Case-Shiller CoreLogic National Index will be seen as marking a shift from the housing recovery to the hoped-for start of a new advance” said David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “While seven of the 20 cities previously reached new post-recession peaks, those that experienced the biggest booms – Miami, Tampa, Phoenix, and Las Vegas -- remain well below their all-time highs.”

Month-over-month

Before seasonal adjustment, on a month-over-month basis, the National Index posted a September gain of 0.4%, with both the 10-City Composite and the 20-City Composite up 0.1%.

After seasonal adjustment, the National Index rose 0.8%, the 10-City Composite was up 0.2%, and the 20-City Composite advanced 0.4%.

Fifteen of 20 cities reported increases in September before seasonal adjustment; after seasonal adjustment, all 20 cities saw prices rise.

Blitzer said the market is showing several positive signals, including a rise in sales of existing and new homes and new-home construction at a post-recession peak.

The price of houses across the U.S. continued to gain in value during the third quarter.

The Federal Housing Finance Agency (FHFA) reports its House Price Index (HPI) was up 1.5% in the July-August quarter and 6.1% percent from the third quarter of 2015 following an advance of 1.2% in the second quarter.

On a month-over-month basis, the HPI rose 0.6% in September from August.

“Our data indicate that the deceleration in home price growth that we observed in late spring proved to be short-lived,” said FHFA Supervisory Economist Andrew Leventis. “While price growth in select markets has cooled somewhat for the U.S. as a whole, the third quarter showed no evidence of a widespread slowdown.”

While the HPI rose 6.1% during last year's third quarter, prices of other goods and services were nearly unchanged. The inflation-adjusted price of homes rose approximately 6.0% over the last year.

The HPI is calculated using home sales price information from mortgages sold to, or guaranteed by, Fannie Mae and Freddie Mac.

Report highlights

• Home prices rose in 49 states between the third quarter of 2015 and the third quarter of 2016; Delaware and the District of Columbia were the only areas not to see price increases. The top five states in annual appreciation were: 1) Florida 10.7%; 2) Oregon 10.4%; 3) Washington 10.4%; 4) Colorado 10.0%; and 5) Utah 9.5%.
• Among the 100 most populated metropolitan areas in the U.S., annual price increases were greatest in Tacoma-Lakewood, Wash. (MSAD), where prices increased by 12.9%. Prices were weakest in New Haven-Milford, Conn., where they fell 1.7%.
• Of the nine census divisions, the South Atlantic division experienced the strongest increase in the third quarter, posting a 1.8% quarterly increase and a 7.1% increase since the third quarter of last year. House price appreciation was weakest in the New England division, where prices rose 0.8% from the previous quarter.

The full report may be found on the FHFA website.

Jobless claims

First-time applications for state unemployment benefits blipped higher in the week preceding Thanksgiving.

The Department of Labor (DOL) reports initial jobless claims rose 18,000 in the week ending November 19 to a seasonally adjusted 251,000.

Even with that increase, initial claims have been below 300,000 for 90 consecutive weeks, the longest streak since 1970.

The four-week moving average, which many economists believe is a more accurate gauge of the economy because of its lack of volatility, came in at 251,000 -- down 2,000 from the previous week.

The complete report is available on the DOL website.

Housing affordability was down slightly in the third quarter as rising home prices offset a dip in mortgage interest rates.

According to the National Association of Home Builders (NAHB/Wells Fargo) Housing Opportunity Index, 61.4 % of new and existing homes sold in the July-September period were affordable to families earning the U.S. median income of $65,700. In the previous three-month time frame, 62% of homes were affordable.

“Historically low interest rates and firming job growth are positive indicators that housing markets across the nation will continue to gradually improve,” said NAHB Chairman Ed Brady. “Home prices, however, continue to be affected by the rising costs of construction, both in terms of land and labor.”

The national median home price increased from $240,000 in the second quarter to $247,000 in the third quarter, as average mortgage rates slipped from 3.88% to 3.76% in the same period.

Most affordable markets

Elgin, Ill., was rated the nation’s most affordable major housing market, where 94.3% of all new and existing homes sold in third quarter were affordable to families earning the area’s median income of $82,500. Fairbanks, Alaska, was rated the nation’s most affordable smaller market, with 97.7% of homes affordable to families earning the median income of $93,800.

Rounding out the top five affordable major housing markets in respective order were Youngstown-Warren-Boardman, Ohio-Pa.; Scranton-Wilkes-Barre-Hazleton, Pa.; Indianapolis-Carmel-Anderson, Ind.; and Syracuse, N.Y.

Smaller markets joining Fairbanks at the top of the list included Monroe, Mich.; Binghamton, N.Y.; Wheeling, W.Va.-Ohio; and Davenport-Moline-Rock Island, Iowa-Ill.

Least affordable markets

For the 16th straight quarter, San Francisco-Redwood City-South San Francisco, Calif., was the nation’s least affordable major housing market. There, just 9.7% of homes sold in the third quarter were affordable to families earning the area’s median income of $104,700.

Other major metros at the bottom of the affordability chart were located in California. In descending order, they included Los Angeles-Long Beach-Glendale; Anaheim-Santa Ana-Irvine; San Jose-Sunnyvale-Santa Clara; and Santa Rosa.

Four of the five least affordable small housing markets were also in California. At the very bottom of the affordability chart was Salinas, where 17.6% of all new and existing homes sold were affordable to families earning the area’s median income of $63,500.

In descending order, other small markets at the lowest end of the affordability scale included Santa Cruz-Watsonville; Napa; San Luis Obispo-Paso Robles-Arroyo Grande; and Kahului-Wailuku-Lahaina, Hawaii.

July was another month of solid gains in home prices, according to the S&P CoreLogic Case-Shiller Indices, with the index covering all nine U.S. census divisions showing a 5.1% annual gain.

The 10-City Composite was up 4.2%, down from the 4.3% annual gain posted in June, while the 20-City Composite rise of 5.0% was down 0.1% from June.

The highest year-over-year gains among the 20 cities over each of the last six months came in Portland, Seattle, and Denver. Portland led the way in July with a year-over-year price increase of 12.4%, followed by Seattle at 11.2%, and Denver with a 9.4% advance. Nine cities reported greater price increases in the year ending July 2016 versus the year ending June 2016.

“The S&P CoreLogic Case-Shiller National Index is within 0.6% of the record high set in July 2006, said David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices. “Seven of the 20 cities have already set new record highs. The 10-year, 20-year, and National indices have been rising at about 5% per year over the last 24 months. Eight of the cities are seeing prices up 6% or more in the last year.”

Month-over-month

Before seasonal adjustment, the National Index was up 0.7% from June. The 10-City Composite recorded a month-over-month increase of 0.5%, while the 20-City Composite was up 0.6%.

After seasonal adjustment, the National Index recorded a 0.4% month-over-month increase, the 10-City Composite was down 0.1%, and the 20-City Composite was unchanged.

After seasonal adjustment, 12 cities saw prices rise, two were unchanged, and six cities reported declines.

If you would like to buy a house but happen to work in California's Silicon Valley, you might have trouble, even on a tech company salary.

According to Coldwell Banker's latest ranking, the 10 most expensive housing markets in the U.S. are all located in California. Six are located in Silicon Valley.

“Silicon Valley has been at the forefront of innovation in the U.S. for years, with leading tech companies attracting some of the brightest entrepreneurial minds in the world,” said Coldwell Banker CEO Charlie Young. “Clearly, the amenities of the region are also impacting home prices.”

But for people who can live anywhere, or who are willing to relocate, there are still some enticing deals out there. And it isn't necessary to move to the middle of nowhere to find them.

While the average four bedroom, two bath home in Saratoga, Calif., goes for nearly $2.5 million, Coldwell Banker found the same type homes going for less than $250,000 in nearly 40% of the markets it serves.

Top 10 most affordable cities

Detroit

The Motor City has been through a very rough patch that includes bankruptcy, but in the last couple of years it has been on the upswing. Part of the draw has been bargain-priced real estate. In Coldwell Banker's survey, Detroit is the nation's most affordable housing market with an average home price of just $64,110.

Cleveland

Cleveland is another Rust Belt city on the comeback trail, and is now basking in the glow of an NBA championship. Start-up businesses are thriving, supported by a private initiative by Cleveland Cavaliers star Lebron James. Low prices for houses have helped draw Millennials back. The average four bedroom, two bath home goes for $73,073.

Park Forest, Ill.

Park Forest is a community of about 22,000 located south of Chicago that straddles Cook and Will counties. The average home price is $78,392.

Jamestown, N.Y.

Jamestown lies in the southwestern corner of New York near the Pennsylvania border. The city of 30,000 is an easy drive to Pittsburgh and offers natural beauty for an affordable price. The average home price is $88,891.

Utica, N.Y

While New York has a reputation for a high cost of living, the Coldwell Banker survey finds two of the state's cities among the 10 most affordable markets. Utica, just west of Syracuse, has a population of 62,225 and an average home price of $92,891.

Wilkes-Barre, Pa.

Pennsylvania also adds two housing markets to the list. Wilkes-Barre is city of 41,000 people, clustered with Scranton and Hazelton, convenient to both Philadelphia and New York. The average house goes for $94.436.

Scranton, Pa.

Scranton, one of Wilkes-Barre's partner cities, has a population of 76,000 and is home to the fictional Dunder-Mifflin paper company, of the TV sitcom “The Office.” The real life price of a home is $108,842.

Huntington, Ind.

Huntington, with a population of 17,000, is located southwest of Ft. Wayne. Its average four bedroom house goes for $105,614.

Augusta, Ga.

Augusta is in a beautiful part of the world, as evidenced each April when it becomes the center of the professional golf universe. A home in the home of The Masters goes for an average of $106,567.

Palatka, Fla.

Florida real estate prices have made a comeback since the housing crash, but you can still find bargains, especially if you look in Palatka, a town of 10,000 on the St. John's River. The average home there sells for $110,655.

Month after month it seems to be the same story. Home prices go up, even if sales for the month are flat, or even lower.

It's a trend that has been in place since the housing recovery began, and it has begun to affect affordability.

The National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index (HOI) released last week found that 62% of new and existing homes sold between the beginning of April and the end of June were affordable to families earning the median income of $65,700. That's down from 65% in the first quarter.

Nationally, the median home price increased $17,000, from $223,000 in the first quarter to $240,000 in the second quarter. Interest rates are below 4%, but that's not what's driving the dramatic price rise.

During the housing bubble, prices rose because almost anyone could qualify for a mortgage. The demand for housing sent prices skyrocketing to unsustainable levels.

Not enough homes for sale

Demand is also responsible for rising prices today, but for very different reasons than a decade ago. There simply are not enough homes for sale. Fewer existing homes and fewer new homes.

Jonathan Smoke, chief economist for realtor.com, says new home construction has failed to keep up with demand since the recovery. He doesn't expect to see that changing soon.

“Single-family is continuing to show gains, but the gains in permits are weaker than the gains in starts,” Smoke said in an email to ConsumerAffairs. “Builders are starting what they already permitted earlier this year but are not bullish about demand this fall and winter.”

New homes typically cost more than existing homes and housing experts say construction costs have gone up since the housing crash. For that reason, builders have largely focused on multi-family units and luxury single-family homes.

Smoke says the seasonally adjusted rate of permitting in July was not statistically significant. On a year-to-date basis, permits are up in every region but the Northeast.

Shrinking inventory

At the same time, there are fewer existing homes for sale. In its June existing home sales report, the National Association of Realtors (NAR) noted that inventory levels continue to decline. Total housing inventory at the end of the month was 2.12 million homes, nearly 6% fewer than a year ago. Inventory was at a 4.6-month supply, down form 4.7 months in May.

With supply and demand out of balance, the result is fewer renters can afford to buy. Those who can afford it may have difficulty finding a house they like.

Rising home prices outweighed falling mortgage rates when it came to housing affordability in the second quarter of the year.

The National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index (HOI) found that 62% of new and existing homes sold between the beginning of April and the end of June were affordable to families earning the U.S. median income of $65,700. In the first quarter it was 65%.

The national median home price increased from $223,000 in the first quarter to $240,000 in the second quarter. At the same time, average mortgage rates dipped from 4.05% to 3.88%.

“Though we have seen a modest drop in affordability in the second quarter, the HOI is still fairly high by historical standards,” said NAHB Chief Economist Robert Dietz. “Rising employment, favorable mortgage rates and increasing household formations will keep the housing market on a gradual, upward path during the rest of the year.”

Most and least affordable

For the third consecutive quarter, Youngstown-Warren-Boardman, Ohio-Pa., was rated the nation’s most affordable major housing market, with 91.1% of all new and existing homes sold in the second quarter affordable to families earning the area’s median income of $53,900.

Rounding out the top five affordable major housing markets in respective order were Scranton-Wilkes-Barre-Hazleton, Pa.; Syracuse, N.Y.; Harrisburg-Carlisle, Pa.; and Indianapolis-Carmel-Anderson, Ind.

Meanwhile, Kokomo, Ind., claimed the title of most affordable small housing market in the second quarter of 2016. There, 98.2% of homes sold during the second quarter were affordable to families earning the median income of $60,900.

Smaller markets joining Kokomo at the top of the list included Cumberland, Md.-W.Va.; Fairbanks, Alaska; Davenport-Moline-Rock Island, Iowa-Ill; and Monroe, Mich.

For the 15th quarter in a row, San Francisco-Redwood City-South San Francisco, Calif., was the nation’s least affordable major housing market. Just 8.5% of homes sold there were affordable to families earning the area’s median income of $104,700.

Other major metros at the bottom of the affordability chart were located in California. In descending order, they included Los Angeles-Long Beach-Glendale; Anaheim-Santa Ana-Irvine; San Jose-Sunnyvale-Santa Clara; and San Rafael.

California also claimed the five least affordable small housing markets. At the very bottom of the affordability chart was Santa Cruz-Watsonville, where 14.7% of all new and existing homes sold were affordable to families earning the area’s median income of $85,100.

Other small markets at the lowest end of the affordability scale included Salinas; Napa; San Luis Obispo-Paso Robles-Arroyo Grande; and Santa Maria-Santa Barbara.

“Firm job growth, historically low interest rates and healthy price appreciation in many markets are all positive signs that the housing recovery continues to move forward,” said NAHB Chairman Ed Brady. “At the same time, regulatory hurdles and rising costs for buildable lots and skilled labor continue to put upward pressure on the cost of building a home.”

Whether it's a house listed at $299,999 or a product sold on TV for “three easy payments of $19.95,” marketers have long resorted to “just below” pricing – setting the price just below a round number.

They've done it because they think it's effective. Just ask yourself how many times you bragged to a friend that you filled your gas tank for $1.99 a gallon, when in fact it was $1.99.9 a gallon – $2, for all practical purposes.

Turns out there is research to show this “just below” pricing actually works pretty well. Eli Beracha of Florida International University, who conducted the study with Michael J. Seiler, of The College of William & Mary, said that using this method means sellers can ask more for something without driving away buyers.

Their study looked at 1,000 buyers in Virginia who were considering 370,000 listings. The research team focused on the impact of pricing homes in round numbers as opposed to a price that was just below that number.

“On average, buyers are more attracted to a house priced at $199,000 than to a house priced at $200,000 and it appears that ‘just below’ pricing works out favorably for sellers in terms of their bottom line,” Beracha said.

Buyers end up paying more

In fact, the researchers maintain that dropping the price as little as $1 consistently yields a higher selling price. They say it can result in a buyer paying as much as $6,000 more on a $200,000 property.

“We tested the age-old debate concerning the best technique to price a home when listing it for sale,” Seiler said. “We find that using a price just below a round number works best, particularly in connection to the left-most digit in the price. So, $199,999 works better than $200,000.”

There is still some debate in the real estate industry about the effectiveness of this pricing, but sellers might want to take the research into consideration when putting their homes on the market.

Of course, buyers – not just of homes but of all products – should probably keep it in mind as well. When something is priced at $49.99, it's really $50. A home priced at $199,000 is really $200,000.

And any sale at a “just under” price will always be “just over” after you pay sales taxes, shipping, and other assorted fees that are always associated with any sale these days.

Home prices moved higher in June on both an annual and a month-over-month basis.

The CoreLogic Home Price Index (HPI) shows prices nationwide -- including distressed sales -- rose 5.7% year-over-year and 1.1% compared with May 2016.

“Mortgage rates dipped in June to their lowest level in more than three years, supporting home purchases,” said CoreLogic Chief Economist Dr. Frank Nothaft. “Local markets with strong economic growth have generally had stronger home-price growth. Among large metropolitan areas, Denver had the lowest unemployment rate and the strongest home-price appreciation.”

The CoreLogic HPI Forecast projects home prices will increase by 5.3% on a year-over-year basis from June 2016 to June 2017, and on a month-over-month basis by 0.6% from June 2016 to July 2016.

"Home prices continue to increase across the country, especially in the lower price ranges and in a number of metro areas," said Anand Nallathambi, president and CEO of CoreLogic. "We see prices continuing to increase at a healthy rate over the next year.”

Personal income and spending

From the government, word that consumers were earning more and spending it in June.

The Bureau of Economic Analysis (BEA) reports personal income inched ahead 0.2% or $29.3 billion, with disposable personal income (DPI) -- what you have left after taxes -- up $24.6 billion or 0.2%.

Personal consumption expenditures (PCE) rose $53.0 billion (0.4%).

Earning, spending and saving

June's increase in personal income came mainly from increases in private wages, salaries, and nonfarm proprietors’ income. These were partly offset by declines in personal dividend income and personal interest income.

The increase in spending primarily reflected increases in outlays for electricity and gas, healthcare services, and other nondurable goods that were partly offset by a drop in spending for new motor vehicles.

Personal saving was $732.0 billion in June, putting the personal saving rate -- personal saving as a percentage of disposable personal income -- at 5.3%, the same as May.

The complete report is available on the BEA website.

Home prices rose in May, but not at the clip we saw the month before.

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, which covers all nine U.S. census divisions, was up 5.0% in May from the same month a year earlier. Within that measure, the 10-City Composite rose 4.4%% increase, down 0.3% from the gain posted the previous month, and the 20-City Composite reported a year-over-year gain of 5.2%, down from 5.4% in April.

The highest year-over-year gains among the 20 cities over each of the last four months were recorded in Portland, Seattle and Denver. In May, Portland led the way with a 12.5% year-over-year price increase, followed by Seattle at 10.7%, and Denver with a 9.5% increase. Eight cities reported greater price increases in the year ending May 2016 versus the year ending April 2016.

“Home prices continue to appreciate across the country,” said David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices. “Overall, housing is doing quite well. In addition to strong prices, sales of existing homes reached the highest monthly level since

2007 as construction of new homes showed continuing gains.

Month-over-month

The National Index posted a month-over-month gain of 0.2% in May, with the 10-City Composite down 0.8%, and the 20-City Composite posting a 0.1% decline in May. Twelve cities saw prices rise, two cities were unchanged, and six cities saw prices fall.

Regional patterns seen in home prices are shifting. Blitzer notes that over the last year, the Pacific Northwest has been quite strong while prices in the previously strong spots of San Diego, San Francisco and Los Angeles saw more modest increases.

“The two hottest areas during the housing boom were Florida and the Southwest,” he said, adding that Miami and Tampa have recovered in the last few months while Las Vegas and Phoenix remain weak. “When home prices began to recover,” Blitzer added, “New York and Washington saw steady price growth; now both are among the weakest areas in the country.”

Another rise, albeit a small one, for the price of housing in May.

The Federal Housing Finance Agency (FHFA) reports its House Price Index (HPI) rose 0.2%, marking the third consecutive monthly advance. At the same time, the April increase was revised higher -- from 0.2% to 0.3%.

On a year-over-year basis, prices were up 5.6% from May 2015.

For the nine census divisions, seasonally adjusted monthly price changes from April to May ranged from -1.3% in the New England division to +1.2% in the Mountain division. The 12-month changes were all positive -- ranging from +3.4% in the Middle Atlantic division to +8.5% in the Mountain division.

The monthly HPI is calculated using home sales price information from mortgages sold to, or guaranteed by, Fannie Mae and Freddie Mac.

The complete report is available on the FHFA website.

Jobless claims

Also from the government, word that first-time applications for state unemployment benefits remained below 300,000 for a 72nd consecutive week, the longest streak since 1973.

The Department of Labor (DOL) reports initial jobless claims were down by 1,000 in the week ending July 16, to a seasonally-adjusted 253,000 -- down from the previous week's unrevised level.

The four-week moving average, considered by many economists to be a more accurate gauge of the labor market, fell by 1,250 from the previous week's unrevised figure to 257,750.

The full report may be found on the DOL website.

If you own a home, chances are good that you saw it rise in value -- again.

Property information provider CoreLogic reports housing prices were up in May both year-over-year and month-over-month.

The CoreLogic Home Price Index (HPI) jumped by 5.9% from the same month a year ago, and was up 1.3% from April.

“Housing remained an oasis of stability in May with home prices rising year over year between 5% and 6% for 22 consecutive months,” said CoreLogic Chief Economist Dr. Frank Nothaft. “The consistently solid growth in home prices has been driven by the highest resale activity in nine years and a still-tight housing inventory.”

Looking ahead

The CoreLogic HPI Forecast projects a year-over-year rise of 5.3% for May 2017, and a 0.8% increase from May 2016 to June 2016.

The forecast is a projection of home prices using the CoreLogic HPI and other economic variables. Values are derived from state-level forecasts by weighting indices according to the number of owner-occupied households for each state.

“Housing remained an oasis of stability in May with home prices rising year over year between 5% and 6% for 22 consecutive months,” said CoreLogic Chief Economist Dr. Frank Nothaft. “The consistently solid growth in home prices has been driven by the highest resale activity in nine years and a still-tight housing inventory.”

“Price appreciation continues to be fairly broad-based across the U.S.,” said Anand Nallathambi, president and CEO of CoreLogic. “From a regional perspective, the Pacific Northwest continues to be the hottest area for home-price growth, with Oregon and Washington leading the way. The recent turbulence in financial markets should lead to modestly lower mortgage rates, which will provide even more support to the steadily improving real estate recovery.”

House prices rose in value across the U.S. in April, but at a slower pace on both a year-over-year and month-over-month basis.

According to the S&P/Case-Shiller National Home Price Index (HPI), which covers all nine U.S. census divisions, prices posted a 5.0% annual gain, compared with an advance of 5.1% the previous month. The 10-City Composite was up 4.7%, versus 4.8% in March, and the 20-City Composite reported a year-over-year gain of 5.4% -- from 5.5% from the prior month.

Portland led the way with a year-over-year price increase of 12.3%, followed by Seattle at 10.7% and Denver with a 9.5% gain. Nine cities reported greater price increases in the year ending April 2016 versus the year ending March 2016.

The HPI recorded a month-over-month gain of 1.0% in April, with the10-City Composite up 1.0% and the 20-City Composite rising 1.1%.

Uncertainty ahead

”The housing sector continues to turn in a strong price performance with the S&P/Case-Shiller National Index rising at a 5% or greater annual rate for six consecutive months,” said David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “The home price increases reflect the low unemployment rate, low mortgage interest rates, and consumers’ generally positive outlook.”

Blitzer notes, however, that the outlook is not without a lot of uncertainty and some risk. “Last week’s vote by Great Britain to leave the European Union is the most recent political concern while the U.S. elections in the fall raise uncertainty and will distract home buyers and investors in the coming months,” he said.

In addition, a closer look at home price data also hints at possible softness. According to Blitzer, “Seasonally adjusted figures in the report show that three cities saw lower prices in April compared to only one city in March. Among the 20 cities, 16 saw either declines or smaller increases in monthly prices in the seasonally adjusted numbers.”

A leading measure of U.S. home prices shows increases in value continued during March.

On a year-over-year basis, the S&P/Case-Shiller U.S. National Home Price Index, which covers all nine U.S. census divisions, posted a 5.2% gain with the 10-City Composite and the 20-City Composites’ year-over-year gains unchanged at 4.7% and 5.4%, respectively, from the previous month.

The highest gains among the 20 cities with another month of annual price increases came in Portland, Seattle, and Denver. Portland led the way with a 12.3% surge, followed by Seattle at 10.8%, and Denver with an increase of 10.0%. Ten cities reported greater price increases in the year ending March 2016 versus the year ending February 2016.

“The economy is supporting the price increases with improving labor markets, falling unemployment rates and extremely low mortgage rates,” said David M. Blitzer, managing director & chairman of the Index Committee at S&P Dow Jones Indices.

“Another factor behind rising home prices is the limited supply of homes on the market. The number of homes currently on the market is less than 2% of the number of households in the U.S. -- the lowest percentage seen since the mid-1980s.”

Month-over-month

The National Index was up 0.7% in March, with the 10-City Composite recording a 0.8% month-over-month increase while the 20-City Composite rose 0.9%. Six cities saw prices rise, one city was unchanged, and prices dropped in 13 cities.

The year-long housing market narrative has been one of rising prices, which has been cheered as a good economic sign.

After all, the housing crash of 2008-09 left millions of homeowners underwater and led to widespread foreclosures.

But real estate marketplace Zillow reports home prices are now rising faster than anyone expected. And it isn't due to a robust economy – it's because the supply of homes for sale has shrunk, making the homes that are on the market worth more.

In its existing home sales report for April, the National Association of Realtors (NAR) said the median price for all types of homes was $232,500 – a gain of 6.3% year-over-year.

Zillow uses a different metric to measure home prices, and it places the median home price in the U.S. significantly less, at $187,000. Still, that's a 5% increase over the last 12 months and may be a cause for concern.

Worries

"The temporary relief from mortgage rates currently near three-year lows has helped preserve housing affordability this spring, but there's growing concern a number of buyers will be unable to find homes at affordable prices if wages don't rise and price growth doesn't slow," said Lawrence Yun, NAR's chief economist.

The Zillow report shows a wide gap in home prices, depending on the market. While prices seem to be rising in most markets, the median price appears to be reaching bubble proportions in some markets faster than others.

For example, in Dallas-Fort Worth, the median home price gained 12.6% in the last 12 months, but is only $183,000. San Francisco, meanwhile, saw a 10% appreciation in the median home price, which is now $806,800.

Wide price variations

Using Zillow's national median home value of $187,000 as a baseline, the median home in Dallas is 2% below the national average. However, the median home in San Francisco is more than four times the national average.

Denver, the nation's hottest housing market, saw the median home value rise 15.2% in the last year to $336,600 – nearly twice the national average. The median home price in Los Angeles is $567,700, more than three times the national average.

But the median home prices in Houston, Detroit, and Atlanta remain well below Zillow's national average, yet values grew in all three metros last year by at least 6%.

If a housing bubble is forming, it isn't universally recognized. People in Atlanta aren't seeing it. But home buyers in markets where inventory is low and high-income jobs are plentiful certainly are.

Prices for houses across the U.S. were up during the first three months of the year, marking the 19th consecutive quarterly increase.

According to the Federal Housing Finance Agency (FHFA) House Price Index (HPI), prices rose 1.3% in the first quarter of 2016 and were up 5.7% from the period a year earlier.

The HPI is calculated using home sales price information from mortgages sold to, or guaranteed by, Fannie Mae and Freddie Mac.

"While the overall appreciation rate was robust in the first quarter, home price appreciation was somewhat less widespread than in recent quarters," said FHFA Supervisory Economist Andrew Leventis. "Twelve states and the District of Columbia saw price declines in the quarter -- the most areas to see price depreciation since the fourth quarter of 2013. Although most declines were modest, such declines are notable given the pervasive and extraordinary appreciation we have been observing for many years."

Report highlights

• Home prices rose in every state between the first quarter of 2015 and the first quarter of 2016. The top five states in annual appreciation were Oregon (11.8%), Florida (11.2%), Washington (10.9%), Nevada (9.4%), and Colorado (9.0%).
• Among the 100 most populated metropolitan areas in the U.S., annual price increases were greatest in the West Palm Beach-Boca Raton-Delray Beach, Fla., where prices increased by 16.7%. Prices were weakest in El Paso, Texas, where they fell 2.8%.
• Of the nine census divisions, the Pacific division experienced the strongest increase in the first quarter, posting a 1.9% quarterly increase and an 8.1% increase since the first quarter of last year. House price appreciation was weakest in the Middle Atlantic division, where prices rose 0.6% from the last quarter.

The complete report is available on the FHFA website.

Home prices were on the rise again in March according to CoreLogic.

The provider of property information, analytics and data-enabled services says its Home Price Index (HPI) shows home prices nationwide -- including distressed sales -- posted a year-over-year gain of 6.7% and were up 2.1% from February.

“Home prices reached the bottom five years ago, and since then have appreciated almost 40%,” said Anand Nallathambi, president and CEO of CoreLogic. “The highest appreciation was in the West, where prices continue to increase at double-digit rates.”

Looking ahead

The CoreLogic HPI Forecast indicates home prices will rise 5.3% on a year-over-year basis from March 2016 to March 2017, and 0.7% from March 2016 to April 2016.

The forecast is a projection of home prices using the CoreLogic HPI and other economic variables.

“Housing helped keep U.S. economic growth afloat in the first quarter of 2016 as residential investment recorded its strongest gain since the end of 2012,” said Dr. Frank Nothaft, chief economist for CoreLogic. “Low interest rates and increased home building suggest that housing will continue to be a growth driver.”

The 55+ housing market

In other housing news, the National Association of Home Builders (NAHB) says builder confidence in the single-family 55+ housing market remained in positive territory for the first quarter of 2016

Despite a six-point dip -- from 61 to 55 -- in the NAHB 55+ Housing Market Index from the previous quarter, this is the eighth consecutive quarter with a reading above 50. An index number above 50 indicates that more builders view conditions as good than poor.

"Although builder sentiment in the 55+ housing sector is down slightly from its peak, overall confidence is still in positive territory," said Jim Chapman, chairman of NAHB's 55+ Housing Industry Council. "Builders for the 55+ market are doing quite well in some areas across the country, while others are experiencing challenges that are hindering production."

San Francisco has always been an expensive real estate market. Lots of people want to live there.

But in the last five years, San Francisco has gotten to be unaffordable for most people. The Home Value Forecast, produced by Pro Teck Valuation Services, explored some of the reasons.

It found that, as the economy recovered from the Great Recession, San Francisco created 500,000 new jobs. These were the kinds of jobs politicians like to call “good jobs.” Mostly involving technology, they command big salaries.

At the same time, the Great Recession and resulting housing crash resulted in a plunge in home building activity in the region, where land is at a premium. So a half-million new jobs and almost no expansion in housing inventory when supply and demand is way out of balance.

That's resulted in a housing market where the average home lists for $1.2 million, and there is no shortage of buyers.

Long commute

The Forecast recounts the tale of one San Francisco worker who could barely afford a one-bedroom apartment in the metro area. Instead, he rented a two-bedroom apartment in Las Vegas, Nev., commuting to San Francisco four days a week. He estimates his savings at $1,124 per month.

Urban planners are concerned about what this is doing to the character of the city, not to mention the practical question of where the city's vital workers, who don't command high six-figure salaries, are going to live.

“Gentrification, or the influx of capital and higher-income, higher-educated residents into working-class neighborhoods, has already transformed about 10% of Bay Area neighborhoods,” writes the Urban Displacement Project, at the University of California Berkley.

Widespread displacement

Its authors found displacement was forcing residents to move out of 48% of Bay Area neighborhoods because prices had gotten too high. It said these neighborhoods were about evenly divided between low income enclaves and those populated by moderate to high-income residents.

The Home Value Forecast reports many of these displaced residents, who work in San Francisco, are moving to Antioch, Calif. For most, it means a daily one-way commute of more than one hour, landing it on the list of the 50 worst commutes in America.

Real estate marketplace Zillow recently reported that housing markets that provide the best opportunities for advancement – places like San Francisco and Seattle – are now unaffordable for low income consumers who could benefit most.

In two thirds of the metros that Zillow measured, renters had to spend more of their income on rent than the historical average. In major job markets like the Bay Area, New York, and Los Angeles, it takes 40% of the median income to pay the median rent.

It's worse in Los Angeles, where he median worker has to spend nearly half of their income on rent.

Home values across the U.S. posted year-over-year and month-over-month gains in February.

However, the S&P/Case-Shiller U.S. National Home Price Index (HPI) shows the rate of increase was slowing.

Year-over-Year

The National HPI, covering all nine U.S. census divisions, recorded a 5.3% annual gain in February, the same as in January. The slowdowns came in the 10-City Composite, which was up 4.6%, compared with January's advance of 5.0% from the same month in 2015.

Additionally, the 20-City Composite’s year-over-year gain was 5.4%, versus 5.7% the month before. Among those 20 cities, Portland (+11.9%), Seattle (+11.0%), and Denver (+9.7%) posted the biggest year-over-year gains. Seven cities reported greater price increases in the year ending February 2016 than in the year ending January 2016.

”Home prices continue to rise twice as fast as inflation, but the pace is easing off in the most recent numbers,” said David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices.

“The year-over-year figures for the 10-City and 20-City Composites both slowed and 13 of the 20 cities saw slower year-over-year numbers compared to last month.”

Month-over-month

Before seasonal adjustment, the National HPI posted a gain of 0.2% month-over-month in February, with the 10-City up just 0.1% and the 20-City Composite posting a 0.2% increase. After seasonal adjustment, the National HPI recorded a 0.4% month-over-month increase.

The 10-City Composite was up 0.6% and the 20-City Composite reported a 0.7% month-over-month increase. Fourteen of 20 cities reported increases in February before seasonal adjustment; after seasonal adjustment, only 10 cities increased for the month.

“The slower growth rate is evident in the monthly seasonally adjusted numbers,” Blitzer noted, pointing out that six cities, "experienced smaller monthly gains in February compared to January, when no city saw growth." Among the six were Seattle, Portland OR, and San Diego, all of which were very strong last time.

Another rise for home prices in February on both a year-over-year and month-over-month basis

Property information provider CoreLogic reports that home prices nationwide -- including distressed sales -- increased 6.8% in February and were up 1.1% from January.

“Home prices continue to rise across the U.S. with every state posting year-over-year gains during the last 12 months,” said Anand Nallathambi, president and CEO of CoreLogic. “Improved economic conditions and tight inventories continue to drive exceptionally strong gains in many markets, especially for homes priced below $500,000.”

Looking ahead

The CoreLogic Home Price Index Forecast projects an increase of 5.2% on a year-over-year basis from February 2016 to February 2017, and on a month-over-month basis a more modest 0.6% from February to March.

“Fixed-rate mortgage rates dropped more than one-quarter of a percentage point in the first three months of 2016, and job creation averaged 209,000 over the same period,” said CoreLogic Chief Economist Dr. Frank Nothaft. “These economic forces will sustain home purchases during the spring and support the 5.2% home price appreciation CoreLogic has projected for the next year.”

Home prices across the country rose over the last 12 months.

On a year-over-year basis, the S&P/Case-Shiller U.S. National Home Price Index (HPI), covering all nine U.S. census divisions, was up 5.4% in January.

The 10-City Composite rose 5.1% for the year., while the 20-City Composite’s year-over-year gain was 5.7%. After seasonal adjustment, the National, 10-City Composite, and 20-City Composite rose 0.5%, 0.8%, and 0.7%, respectively, from the prior month.

West leads the year-over-year advance

Portland, Seattle, and San Francisco reported the highest year-over-year gains among the 20 cities, with another month of double digit annual price increases. Portland was on top with an 11.8% year-over-year price increase, followed by Seattle with 10.7%, and San Francisco with a 10.5% increase.

Eleven cities enjoyed greater price increases in the year ending January 2016 versus the year ending December 2015. Phoenix posted an annual gain of 6.1% in January 2016 versus 6.3% in December 2015, ending its streak of 12 consecutive months of increasing annual gains. The western part of the country saw the largest price gains in the past year; the northeast is the weakest region.

Month-over-month

Before seasonal adjustment, the National Index, the 10-City Composite, and the 20-City Composite all were unchanged in January. After seasonal adjustment, all three composites reported strong advances.

Eleven of 20 cities reported increases in January before seasonal adjustment; after seasonal adjustment, all 20 cities increased for the month.

Inventory worries

“Home prices continue to climb at more than twice the rate of inflation,” said David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices. “The low inventory of homes for sale -- currently about a five month supply -- means that would-be sellers seeking to trade-up are having a hard time finding a new, larger home.

The recovery of the sale and construction of new homes has lagged the gains seen in existing home sales, but this may be starting to change. Starts of single family homes in February were the highest since November 2007, and the single-family-home share of total housing starts was 70% in February, up from a low of 57% in June 2015.

“While low inventories and short supply are boosting prices,” Blitzer said, “financing continues to be a concern for some potential purchasers, particularly young adults and first time home buyers. The issue is availability of credit for people with substantial student or credit card debt.”

Blitzer said one hopeful sign is that the home ownership rate -- at 63.7% in the 2015 fourth quarter -- may be turning around. It is up slightly from 63.5% in the 2015 second quarter but far below the 2004 high of 69.1%.”

Prices for homes were on the rise again in January.

The Federal Housing Finance Agency (FHFA) reports its monthly House Price Index (HPI) was up a seasonally adjusted 0.5% from the month before.

At the same time, the FHFA revised its December figures to show a gain of 0.5% instead of the 0.4% advance it reported initially.

Earlier this month, CoreLogic reported a month-over-month price gain of 1.3%

Regional breakdown

For the nine census divisions, seasonally adjusted monthly price changes from December 2015 to January 2016 ranged from -1.0% in the Middle Atlantic division to +1.7% in the South Atlantic division.

The 12-month changes were all positive, ranging from +1.7% in the Middle Atlantic division to +8.9% in the South Atlantic division.

The FHFA monthly HPI is calculated using home sales price information from mortgages sold to, or guaranteed by, Fannie Mae and Freddie Mac.

The year over year increase in January was 6.0%.

The full report may be found on the FHFA website.

January was a good month for homeowners as prices rose on both a year-over-year and month-over-month basis.

Property information, analytics and data-enabled services provider CoreLogic reports its Home Price Index (HPI) shows home prices nationwide -- including distressed sales -- increased year over year by 6.9% and was up 1.3% from December.

“While the national market continues to steadily improve, the contours of the home price recovery are shifting,” said Dr. Frank Nothaft, chief economist for CoreLogic. “The northwest and Rocky Mountain states have experienced greater appreciation and account for four of the top five states for home price growth.”

Looking ahead

The CoreLogic HPI Forecast indicates home prices will jump 5.5% from January 2016 to January 2017, and 0.5% from January to February.

“Heading into the spring buying season, home prices continue to rise across much of the country,” said Anand Nallathambi, president and CEO of CoreLogic. “With rates staying low for now and continued solid job and income growth, the spring buying season is shaping up to be a good one.”

The CoreLogic HPI Forecast is a projection of home prices using the CoreLogic HPI and other economic variables. Values are derived from state-level forecasts by weighting indices according to the number of owner-occupied households for each state.

The prices of houses in the U.S were up in the final three months of last year for the 18th quarter in a row.

According to the Federal Housing Finance Agency (FHFA) House Price Index (HPI), prices were up 1.4% from the third quarter of last year and 5.8% from the fourth quarter of 2014.

"Instability in financial markets did not seem to put much of a drag on home prices in the fourth quarter," said FHFA Supervisory Economist Andrew Leventis. "The fourth quarter 1.4% increase for the U.S. was in line with the extremely steady -- but historically elevated -- appreciation rates we have been observing for several years now."

The HPI is calculated using home sales price information from mortgages sold to, or guaranteed by, Fannie Mae and Freddie Mac.

While the purchase-only HPI posted a year-over-year gain of 5.8%, prices of other goods and services fell 0.8%. The inflation-adjusted price of homes rose approximately 6.7% over the latest year.

Report highlights

• Home prices rose in every state and in the District of Columbia between the fourth quarter of 2014 and the fourth quarter of 2015. The top five states in annual appreciation were: 1) Nevada 12.7%; 2) Colorado 10.9%; 3) Idaho 10.7%; 4) Washington 10.7%; and 5) Oregon 10.6%.
• Among the 100 most populated metropolitan areas in the U.S., fourth-quarter price increases were greatest in the San Francisco-Redwood City-South San Francisco, Calif., metropolitan statistical areas district, where prices increased by 20.7%. Prices were weakest in New Haven-Milford, Connecticut, where they fell 1.5%.
• Of the nine census divisions, the Pacific division experienced the strongest increase in the fourth quarter, posting a 2.1% quarterly increase and an 8.0% advance since the fourth quarter of 2014. House price appreciation was weakest in the Middle Atlantic division, where prices rose just 0.6% from the previous quarter.

The full report may be found on the FHFA website.

Jobless claims

In other economic news, first-time applications for state unemployment benefits moved sharply higher last week.

The Department of Labor (DOL) reports seasonally adjusted initial claims totaled 272,000 in the week ending February 20, -- up 10,000 from the previous week.

Even with that increase, which was not affected by any special factors, the number of claims remains at the lower end of the 250,000-300,000 range that has prevailed since July 2014.

The four-week moving average, which lacks the weekly tally's volatility and is seen by economists as a more accurate gauge of the labor market, was 272,000, down 1,250 from the previous week.

The complete report is available on the DOL website.