Price increases are still all the rage as the National Association of Realtors (NAR) latest quarterly report found that seven out of 10 metropolitan markets registered home price gains in the first quarter of 2023. Further, 7% percent of the 221 metropolitan areas tracked by the NAR registered double digit price increases, but that number fell from 18% from the fourth quarter of 2022.
The “lock-in” effect is also playing part in this as would be sellers are staying put as they try to avoid taking out a mortgage at the current rate of about 6.7% instead of their current sub-3% financing.
Compared to last year, the median single-family home price decreased 0.2%to $371,200; in the previous quarter, the year-over-year national median price increased 4.0%.
Among the major geographical regions of the country, the South saw the largest share of single-family existing-home sales—coming in at 46%—during the first quarter of 2023, with a year-over-year price appreciation of 1.4%. Prices climbed 2.9% in the Midwest yet slipped 0.1% in the Northeast and 5.3% in the West.
"Generally speaking, home prices are lower in expensive markets and higher in affordable markets, implying greater mortgage rate sensitivity for high-priced homes," said NAR Chief Economist Lawrence Yun.
Yun noted that cities in the West like San Francisco, San Jose and Reno saw home prices drop by at least 10% from a year ago. Conversely, prices rose by at least 10% from the previous year in cities like Milwaukee, Dayton and Oklahoma City.
"Home prices are also lower in cities that previously experienced rapid price gains," Yun added. "For example, home prices grew an astonishing 67% in three years in Boise City and Austin through 2022,” Yun continued. “The latest price reductions in these areas have improved housing affordability and led to some buyers returning given the sustained, rapid job creation in their respective markets."
Year-over-year prices in the first quarter declined by 13.5% in Austin, 10.3% in Boise and 7.3% in Phoenix. Roughly three in 10 markets (31%; 68 of 221) experienced home price declines in the first quarter.
"Due to the intense housing inventory shortage, multiple offers are returning, especially on affordable homes," Yun said. "Price declines could be short-lived."
Inventory in the first quarter averaged 1,630,000 listings at any given time, a 40% reduction from the first quarter of 2019—a year before the onset of the COVID-19 pandemic.
Looking at affordability, during the first quarter affordability improved silghtly from the last quarter of 2022 when mortgage rates hit the 7% mark. The monthly mortgage payment on a typical existing single-family home with a 20% down payment was $1,859. This represents a 5.5% decrease from the fourth quarter of last year ($1,967) but a jump of 33.1%—or $462—from one year ago. Families typically spent 24.5% of their income on mortgage payments, down from 26.2% in the previous quarter but up from 19.5% one year ago.
But for first time buyers, they only found an iota of relief when looking to purchase a typical home during the first quarter of 2023. The typical starter home is now valued at about $315,000; assuming a 10% down payment, the typical mortgage payment for new homeowners stands at $1,825, down 5.4% from the previous quarter but still an increase year-over-year from $1,377 (or a 32.5% increase).
First-time buyers typically spent 37% of their family income on mortgage payments, down from 39.5% in the previous quarter. A mortgage is considered unaffordable if the monthly payment (principal and interest) amounts to more than 25% of the family's income.
A family needed a qualifying income of at least $100,000 to afford a 10% down payment mortgage in 33% of markets, down from 38% in the prior quarter. Yet, a family needed a qualifying income of less than $50,000 to afford a home in 10% of markets, up from 8.6% in the previous quarter.
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