By Gino Blefari, President & CEO, Intero Real Estate Services, Inc.
Who would've thought in 2012 that just two short years later we'd be hearing talk and worry over housing affordability in the U.S.? Well it's here. And with affordability comes the inevitable talk of housing bubbles.
A rapid growth in home prices will conjure up these worries and debates every time. And that's exactly what's happening in some parts of the country – mostly the west.
The median existing single-family home price climbed in 73% of metropolitan markets in the fourth quarter of 2013 from the previous year, according to a recent National Association of Realtors report. Forty-two of the metropolitan areas tracked in the report, or 26%, had double-digit increases, while two were unchanged and 43 recorded lower median prices.
The five most expensive housing markets in the fourth quarter were all in the west: San Jose, Calif., where the median existing single-family prices was $775,000; San Francisco at $682,400; Honolulu at $670,800; Anaheim-Santa Ana, Calif., at $666,300; and San Diego, where the median prices $476,800.
The five least expensive housing markets in the fourth quarter were Toledo, Ohio, where the median single-family home price was $80,500; Rockgord, Ill., at $81,400; Cumberland, Md., at $89,500; Elmira, N.Y., at $99,500; and South Bend, Ind., with a median price of $101,100.
Rising values in the west has been a good thing for homeowners who've seen significant gains in equity – in some cases enabling them the freedom to sell for the first time in several years. This housing activity is also helping to drive local economies through increased consumer spending.
But in some cases, home prices have risen faster than incomes, which impedes some buyers from getting in. That's where affordability concerns start to come into play.
This is also the segment of the market that will be impacted the most by any spikes in mortgage rates, which could stand to price out some buyers.
What we're looking for now in these rapidly rising markets is an increase in housing supply. A lack of available homes is the culprit behind much of the fast pace.
The average supply of homes during the fourth quarter was 4.9 months, up slightly from 4.8 months during the fourth quarter of 2012. However, NAR points out that a supply of 6-6.5 months represents a balance between buyers and sellers. So you can see why there's such frenzy in certain markets right now.
Housing supply will continue to play a large role in affordability this year. Things to watch out for include housing starts for new construction and hopefully a big spring home buying season that spurs more owners to put their homes on the market.
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