Rising Home Prices Lower Affordability
Strong price gains are starting to lower housing affordability- especially in the West.
The average price of a single-family home rose in 73% of housing markets in the fourth quarter of 2013, 26% of which had double-digit pricing gains.
Lawrence Yun, NAR’s chief economist stated that, “The vast majority of home owners have seen significant gains in equity over the past two years, which is helping the economy through increased consumer spending. At the same time, home prices have been rising faster than incomes, while mortgage interest rates are above the record lows of a year ago. This is beginning to hamper housing affordability.”
In the fourth quarter of 2013, the average median home price was $196,000, which is 10.1% up from the previous year when it was $178,000.
The Housing Affordability Index, which is calculated by the relationship between median home prices, median family incomes, and average effective mortgage interest rate dropped in 2013 to 175.8. This is in comparison to 2012, when it was at a 196.5, a record high. The higher the Housing Affordability Index, there’s more purchasing power.
Yun also comments that the double-digit price growth is due in part to tighter housing inventories. There needs to be an increase in housing activity to help relieve the rising home prices. More housing supply will help to regulate the price growth and provide more affordability, but mortgage interest rates are expected to increase 5% this year.
These were the five highest housing markets in the last quarter of 2013:
1. San Jose, CA. at $775,000
2. San Francisco, CA. at $682,400
3. Honolulu, HI. at $670,800
4. Anaheim- Santa Ana, CA. at $666,300
5. San Diego, CA. at $476,800
These were the five areas with the best housing affordability in 2013:
1. Toledo, Ohio
2. Rockford, Illinois
3. Decatur, Illinois
4. Lansing- East Lansing, Michigan
5. Springfield, Illinois