Over the past two years, housing prices have been out-growing both inflation and median income. However, over the last several months, housing prices have begun to decelerate contemporaneously with an increase in both interest rates as well as an increasing housing inventory is some markets.
Many experts believe that the downturn in the housing market is a national event. According to the Case-Shiller 10 - City Index gained roughly 5.5% over the year, which is a slight decrease from 6% in the preceding month. The 20 – City Index increased also showed a 5% decrease at 5.9% from the previous month’s 6.4%. Three fourths of 20 cities saw a lesser increase in home sales in July 2018 than they saw in July 2017.
One of the potential causes for this deceleration in growth for the housing market can be attributed to the fact that for the last 5 years, the rapid increase in housing prices, paired with increased mortgage rates, has made purchasing a home too expensive for most buyers. Further, the mortgage rates are currently closing in on a 7-year high, hitting 4.65% in May 2018.
Earlier this week, the Federal Housing Finance Agency released a staff working paper, which showed the affordability index (an index designed to measure the percent of homes that a household can afford to purchase with a standard down payment) is down – significantly. In the second quarter of 2018, 62% of households earning the median income could afford homes that were placed on the market, this is down 2% from the first quarter, and 17% from the fourth quarter of 2012.
It appears that homes are not being placed on the market at affordable price points, and the result is a slowing housing market. At the Chernov Team we pride ourselves on keeping our thumb on the pulse of the housing market, for better or worse. At the end of the day, whoever comes to the table most prepared walks away with the most, and the Chernov Team always leaves with the most.