The Scotsman Guide - Victor Whitman - 09 February 2017
Home prices have hit a new peak in more than half of the significant U.S. metro housing markets, the National Association of Realtors (NAR) reported on Thursday.
Strong demand for homes and an 18-year low in the inventories for sale have pushed up prices into bubble territory in as many as a quarter of the markets around the country, analysts say.
The median sales price of a single-family home increased in 158 out of 178 metropolitan areas during the past fourth quarter, or nearly 90 percent of these markets, NAR said. Prices have now peaked in 52 percent of the 150 metros that the trade group has specifically tracked since 2005.
The national median existing-home price in the past fourth quarter was $235,000, up 5.7 percent from the fourth quarter of 2015 ($222,300). NAR estimates that there were 1.65 million existing homes for sale, 6.3 percent below the 1.76 million mark at the end of the fourth quarter of 2015. This is the lowest number since NAR began tracking inventories in 1999.
“Depressed new- and existing-inventory conditions led to several of the largest metro areas seeing near or above double-digit appreciation, which has pushed home values to record highs in a slight majority of markets,” NAR's chief economist, Lawrence Yun, said. “The exception for the most part is in the Northeast, where price growth is flatter because of healthier supply conditions.”
Rapidly rising home prices have pushed roughly a quarter of the housing markets in 447 U.S. counties into bubble territory, according to Attom Data Solutions. Attom evaluates county markets with significant populations to determine if the affordability level is in line with the historic average based on home prices and average wages.
“What we are showing is that 29 percent of housing markets that we look at nationwide are less affordable than they have been historically," said Daren Blomquist, a senior vice president with Attom Data Solutions. "And so, based on that, I would say 29 percent of markets are in a bubble.”
Blomquist was quick to say the degree to which these markets are overvalued varies significantly, and it is unclear when or if the bubbles will burst. The company also has estimated that 44 percent of the 201 metropolitan areas that it tracks are overvalued.
“By a bubble I simply mean that prices are over-inflated beyond what people who live and work there locally can afford," Blomquist told Scotsman Guide News.
Earlier this week, CoreLogic reported that its national home-price index rose 7.2 percent year over year in December and 0.8 percent from the November level. Prices have been rising the fastest in the western states of Washington (10.8 percent), Oregon (10.3 percent) and Idaho (9 percent). CoreLogic also said 101 metropolitan housing markets that it tracks were overvalued, including 17 in Texas, and were above their long-run sustainable level.
According to NAR, the nation’s most expensive housing market was San Jose, California, with a median home-sales price of $1,005,000; followed by San Francisco, $837,500; Anaheim-Santa Ana, California, $745,200; urban Honolulu, $740,200; and San Diego, $593,000.
Yun said buyers will increasingly have a hard time affording homes unless more supply enters the market. Single-family housing starts have been steadily increasing to just under 800,000 units annually, but that is about a quarter below the long-run average level achieved before the 2008 Great Recession. The average supply was 3.9 months in the fourth quarter, down from 4.6 months one year earlier.
“Even a pick-up in wage growth may be insufficient to compensate the impact of higher mortgage rates and home prices,” Yun said. “Increased homebuilding will be crucial to alleviate supply shortages and stave off the affordability hit.”