US Markets
Tuesday, June 25th, 2024 5:10 pm EDT
Key Points
- Record-High Home Prices Amid Rising Mortgage Rates and Supply: Despite increasing mortgage rates and a rise in the number of homes for sale, home prices hit a new record in April, with a 6.3% year-over-year increase according to the S&P CoreLogic Case-Shiller National Home Price Index. This trend is unusual as prices typically weaken under such conditions, reflecting the current unique housing market dynamics.
- Severe Housing Affordability Issues: The housing market has become one of the least affordable in U.S. history, impacting both homeowners and renters. Home prices are now 47% higher than in early 2020, and the median sale price is five times the median household income. Renters face a 26% increase in rental prices since 2020, with a significant portion of households spending over 30% or even half of their income on housing, leading to record levels of cost burden.
- Imbalance in Supply and Demand Sustains High Prices: Despite an increase in new listings and total inventory, the housing supply remains insufficient compared to strong demand. This imbalance continues to support high prices. The rapid rise in mortgage rates further strained affordability, causing a spike in listings with price cuts and indicating a challenging environment for potential buyers.
In April, home prices reached a new record, even as mortgage rates increased and the housing supply expanded, defying traditional market dynamics. According to the S&P CoreLogic Case-Shiller National Home Price Index, prices rose 6.3% year-over-year, marking the second consecutive month of surpassing previous all-time highs. This increase occurred despite the average 30-year fixed mortgage rate spiking from 6.9% to 7.5% in April. Brian Luke of S&P Dow Jones Indices noted that 2024 is mimicking last year’s strong start, with significant price rises in March and April, although price gains are beginning to decelerate slightly.
The current market conditions have resulted in one of the least affordable housing markets in U.S. history for both buyers and renters, with housing costs burdening many. Home prices are now 47% higher than in early 2020, and the median sale price is five times the median household income. Renters face similar challenges, with rents up 26% since 2020 and still rising in most markets. According to Harvard’s Joint Center for Housing Studies (HJCH), half of all renter households spend over 30% of their income on housing, and 12 million spend more than half, reaching record levels of cost burden. Homeowners are also struggling, with 20 million considered cost-burdened by their monthly payments, alongside rising insurance premiums and property taxes.
The persistent imbalance between supply and demand continues to support prices. The housing supply was already low before the COVID-19 pandemic, exacerbated by a surge in demand during the pandemic, leading to record-low supply levels. While supply is now increasing, with new listings up 11% in April from March and 16% from April 2023, it remains insufficient to meet strong demand. This supply increase pushed total for-sale inventory up 18% year-over-year, but the market remains tight.
Zillow’s senior economist Orphe Divounguy highlighted that April’s sharp mortgage rate rise made housing less affordable for many, leading to a higher share of listings with price cuts, reaching 22.4% in April, the highest in six years. However, well-priced homes still sold quickly, with an average market time of 13 days, only slightly longer than the previous year. By May, inventory rose to a 3.7-month supply, still below the six-month supply indicative of a balanced market.
In summary, despite rising mortgage rates and an increased housing supply, home prices continue to climb due to the persistent imbalance between supply and demand. This has created an extremely unaffordable market for both buyers and renters, with significant cost burdens and rising associated expenses like insurance and property taxes. The market remains tight, with quick sales for well-priced homes, indicating robust underlying demand despite financial pressures on potential buyers.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/06/25/housing-affordability-price-mortgage-rates.html
