Home Price Increases Slow in Many U.S. Cities in First Quarter

The rate at which home prices are rising has slowed. That may not be great news for home sellers, but it sure helps homebuyers worried about affordability.

Home prices were rising quickly at the end of last year, but the real estate market cooled a bit the first quarter of this year — good news for homebuyers who can struggle to afford homes when prices rise faster than incomes, the NATIONAL ASSOCIATION OF REALTORS® reports.

The U.S. median home price hit $191,600 in the first quarter of this year, up 8.6% from the first quarter of 2013. That seems like a lot, but it’s less than the 10.1% growth seen in the final quarter of 2013 vs the final quarter of 2012. The median price is where half of the homes sold for more and half sold for less.

Homebuyers in Midwestern and Southern cities were in the best position to afford a home, based on how much they earn and how much homes cost there, NAR says.

Lawrence Yun, NAR chief economist, said having home price appreciation slow can be a good thing. “The cooling rate of price growth is needed to preserve favorable housing affordability conditions in the future, but we still need more new-home construction to fully alleviate the inventory shortages in much of the country,” he said. “Limited inventory is creating unsustainable and unhealthy price growth in some large markets, notably on the West Coast.”

The median existing single-family home price increased in 74% of metros, with 125 out of 170 metropolitan statistical areas showing gains based on closings in the first quarter compared with the first quarter of 2013.

The five most-expensive housing markets in the first quarter:

  • San Jose, Calif.: $808,000
  • San Francisco: $679,800
  • Honolulu: $672,300
  • Anaheim-Santa Ana, Calif.: $669,800
  • San Diego: $483,000

The five most-affordable metro areas:

  • Youngstown-Warren-Boardman, Ohio: $64,600
  • Decatur, Ill.: $69,600
  • Toledo, Ohio: $72,100
  • Rockford, Ill.: $73,100
  • Cumberland, Md.: $81,400

NAR reported other good news — fewer home sales overall in the first quarter of this year involved financially distressed homeowners facing foreclosure or a short sale (a short sale occurs when a home sells for less than what’s owed on the mortgage).

Foreclosures and short sales, which usually sell at a discount, accounted for 15% of first quarter sales, down from 23% a year ago.
Seller’s Market

At the end of the first quarter there were 1.99 million existing homes available for sale. That was 3.1% more than in the first quarter of 2013, when 1.93 million homes were on the market.

At the current rate that homes are selling, it’ll take five months to sell all the homes on the market. A supply of 6-7 months represents a rough balance between buyers and sellers, so the first quarter real estate market favored sellers.

Homebuyer Hurdles

Getting a mortgage continues to be a challenge for many would-be homebuyers, says NAR President Steve Brown. “Restrictive mortgage credit remains an unnecessary headwind for the housing market, but NAR is also concerned about costly mortgage insurance fees imposed on Federal Housing Administration-backed home loans that have more than doubled since 2010, pricing out as many as 125,000 to 375,000 buyers,” Brown said.

“When you combine the increases in home prices and interest rates with record-high premiums, home purchases are becoming increasingly out of reach for many qualified borrowers who rely on FHA financing,” Brown said.

How much a homebuyer has to put down on a house influences affordability. The bigger the downpayment, the smaller the mortgage you need to buy a home and, therefore, the less income you need to qualify for that smaller mortgage.

Scenarios for affording a home at the national median price:

  • With a 5% downpayment, a family needs $44,200 in annual income. That’s well within the national median income of $64,500.
  • With 10% down, it takes $41,800 in income to buy the median priced home.
  • With 20% down, the necessary income falls to $37,200.

Condo Prices

In the condo sector — covering changes in 59 metro areas — the national median price for condos and co-ops was $191,400 in the first quarter, up 10.8% from the first quarter of 2013. Fifty metros showed increases in their median condo price from a year ago, and nine areas had declines.

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