Home Prices Are Accelerating Again

February 12, 2016

Home prices posted a strong growth in closing out the final quarter of 2015, despite a moderating pace of sales, according to a new quarterly report released by the National Association of REALTORS® this week.

NAR reports that the median existing single-family home price rose in 81 percent – or 145 out of 179 metro area – of the markets tracked. Thirty metro areas – or 17 percent – posted double-digit price increases in the fourth quarter of 2015, which trumps the 12 percent of markets that saw double-digit increases in the fourth quarter of 2014. 

“Even with slightly cooling demand, the unshakeable trend of inadequate supply in relation to the overall pool of prospective buyers inflicted upward pressure on home prices in several metro areas,” says Lawrence Yun, NAR’s chief economist. “As a result, home ownership continues to be out of reach for a number of qualified buyers in the top job producing, but costliest, parts of the country – especially on the West Coast and parts of the South.”

Nationwide, the median existing single-family home price in the fourth quarter of 2015 was $222,700 – which is up 6.9 percent year-over-year (prices averaged $208,400 in the fourth quarter of 2014).

Meanwhile, total existing-home sales dropped 5.4 percent to a seasonally adjusted annual rate of 5.18 million in the fourth quarter – compared to 5.48 million in the third quarter. Existing-home sales still are 2.4 percent higher than the 5.06 million pace during the fourth quarter of 2014. 

“Without a significant ramp-up in new home construction and more home owners listing their homes for sale, buyers are likely to see little relief in the form of slowing price growth in the months ahead,” Yun says.

Affordability Challenges

The uptick in home prices offset lower mortgage rates and a rise in the national family median income, and caused housing affordability to drop in the fourth quarter compared to year-over-year.

A home buyer making a 5 percent down payment on a median price single-family income would need an income of $49,535, NAR reports. A buyer making a 10 percent down payment would need an income of $46,928, and buyers making a 20 percent down payment would need to earn $41,714.

“Recent employment data is starting to show some pick-up in wage growth as the labor market edges near full employment,” says Yun. “With price appreciation likely to continue at the same pace – and even higher in some markets – incomes need to rise even more to keep affordability conditions from declining further.”

Source: National Association of REALTORS®