Home prices continued their upward trajectory in June, taking a toll on affordability and leading to slower sales in some markets, according to the latest CoreLogic Home Price Index (HPI), released Tuesday. This has particularly impacted younger potential homebuyers.
Home prices rose 0.7 percent over the month in June and were up 6.8 percent from last June, according to the HPI.
Home prices rose in all 50 states over the year in June, and double-digit growth was recorded in four states: Nevada (12.6 percent), Washington (12.1 percent), Idaho (11.4 percent), and Utah (10.4 percent).
The persistently rising prices over the past few years had CoreLogic’s chief economist Frank Nothaft looking somewhat pessimistically at the housing market.
“The rise in home prices and interest rates over the past year have eroded affordability and are beginning to slow existing home sales in some markets,” he said.
“Further increases in home prices and mortgage rates over the next year will likely dampen sales and home-price growth,” he added.
He pointed out that the struggle is particularly acute for first-time homebuyers. Younger millennial renters under the age of 29 demonstrated a strong affinity for homeownership in a study conducted by CoreLogic in partnership with RTi Research.
The under-29 group appears to be more interested in homeownership than older millennials, but they are restricted by down payment costs. Among younger millennials, 63 percent of those who say they are not interested in homeownership cite their inability to afford a home or down payment as the reason for their disinterest.
With ever-rising prices, CoreLogic also examined markets to determine which are over- versus undervalued. Among the 100 largest metropolitan areas, 41 percent are overvalued, 24 percent are undervalued, and the remaining 35 percent are “at value,” according to CoreLogic.
CoreLogic determines whether a market is over- or undervalued by comparing current home prices to their “long-run, sustainable levels.” Those that are at least 10 percent higher are considered overvalued, while those that are 10 percent lower are considered undervalued.
The Nevada metro area housing market experienced a 12.9 percent increase in home prices over the year in June and unsurprisingly, is currently overvalued.
However, the San Francisco metro area, where prices rose 11.2 percent over the year in June, is not overvalued. The market is currently “at value,” according to CoreLogic’s assessment.
A few other notable overvalued markets are the New York, D.C., Denver, Boston, Los Angeles, Houston, and Miami metros.
Looking forward, CoreLogic predicts home prices to grow 5.1 percent between June 2018 and June 2019.
Learn more about what a millennial homebuyer is looking for and how lenders and servicers can reach out to this group, at MReport's Hottest Buyers on the Block: Reaching Millennials webinar presented by Ellie Mae, on August 23. Click below to register for the webinar.