Nearly 90% of major metros across the U.S. registered home price gains in the second quarter, the National Association of REALTORS® reported Tuesday. Homeowners are feeling richer, but home buyers are digging deeper into their pocketbooks to afford a property.
“The record high home prices in most metro markets bring good and bad news,” says NAR Chief Economist Lawrence Yun. “It’s terrific news for homeowners who are moving ahead in wealth gains. However, it’s difficult for those wanting to buy a home as the required income to qualify has roughly doubled from just a few years ago.”
These home price increases come as mortgage rates rose to near 7% during the second quarter, which contributed to worsening housing affordability, NAR reports. The monthly mortgage payment on a typical existing single-family home, with a 20% down payment, is $2,262, up 10.3%—or $212 per month—compared to just a year ago, NAR’s latest quarterly report shows. Families are devoting nearly 27% of their income to mortgage payments, a rising percentage that has economists alarmed.
Some markets have seen home prices climb significantly. Thirteen percent, or 29 of the 223 markets NAR tracks, saw double-digit annual price appreciation. San Jose, Calif., saw its median home price surpass $2 million in the second quarter—the first time that’s ever happened on the metro level, according to NAR’s records.
Relief in Sight for Buyers?
Overall, the national median single-family existing-home price rose by nearly 5% compared to a year ago, reaching $422,100, NAR reports. As more housing inventory arrives on the market, however, price appreciation is showing some signs of leveling. The percentage of metros reporting double-digit annual price appreciation has dropped from 30% in the first quarter of this year to 13% in the second quarter. Also, of the 223 housing markets NAR tracks, nearly 10% registered home price declines in the second quarter, an increase from 7% in the first quarter, according to NAR.
“Previously fast-gaining markets took a breather in the past quarter, including Nashville, Durham, Austin and several Florida metro areas,” Yun says. “Conversely, some markets that experienced declines last year have roared back, such as San Francisco, Anaheim and New York.”
Home prices are fluctuating greatly geographically, and first-time home buyers may be facing some of the biggest challenges. A typical starter home valued at $358,800, with a 10% down payment, resulted in a monthly mortgage payment of $2,218—up 11% from the previous quarter ($1,997) and up 10% from a year ago ($2,011). First-time buyers are spending, on average, 40% of their household income on mortgage payments, a percentage that most financial analysts consider “cost-burdened.”
Households are finding they need a qualifying income of at least $100,000 to afford a 10% down payment on a home in about half of major metros across the country.
Even though the housing market currently remains a challenge for many prospective home buyers, economists believe that could turn around soon. “Housing affordability will improve in the upcoming months,” Yun says. “Mortgage rates have fallen measurably, and more supply is reaching the market. Therefore, the income required to buy a home will decrease.”
Where Home Prices Remain Strongest
Overall, seven of the 10 priciest housing markets were located in California. The most expensive housing markets, as of the second quarter, were:
- San Jose-Sunnyvale-Santa Clara, Calif.: $2,008,000; up 11.6% year over year
- San Francisco-Oakland-Hayward, Calif.: $1,449,000; up 8.5%
- Anaheim-Santa Ana-Irvine, Calif.: $1,437,500; up 15%)
- Honolulu: $1,101,500; up 3.8%
- San Diego-Carlsbad, Calif.: $1,050,000; up 11.4%
- Salinas, Calif.: $1,035,700; up 13.1%
- Oxnard-Thousand Oaks-Ventura, Calif.: $927,900; up 2.5%
- San Luis Obispo-Paso Robles, Calif.: $895,300; up 0.5%
- Boulder, Colo.: $888,300; up 2%
- Naples-Immokalee-Marco Island, Fla.: $867,000; up 2%
