Influenced by a combination of limited inventory, robust demand and rising mortgage rates, for-sale properties in the closing days of 2016 were pricier than what they've been in previous years, a newly released report reveals.
Between Oct. 1 and Dec. 31, nearly 30 percent of all housing types nationally were selling at prices higher than they're historical averages, according to new numbers from ATTOM Data Solutions. That's a sharp increase from just under 25 percent in the previous three-month period and 13 percent during the fourth quarter of 2015.
Daren Blomquist, ATTOM Data Solutions senior vice president, noted that a perfect storm of economic conditions made buying a new home a more difficult proposition for families on a budget.
"Rapid home price appreciation and tepid wage growth have combined to erode home affordability during this housing recovery," Blomquist explained. "The recent uptick in mortgage rates only accelerated that trend in the fourth quarter."
Mortgages climbing and may increase further
Indeed, for almost the entirety of 2016, mortgage rates stayed below 4 percent for 30-year fixed-rate loans, the most popular mortgage type. But in early November – in the immediate aftermath of the presidential election – mortgage values crossed above the 4 percent threshold for the first time since December 2015. Rates have yet to fall back to their previous level, and a number of economists believe 30-year FRMs are poised to remain around 4 percent in 2017, more likely to rise further than to fall.
"As mortgage rates continue to increase, home sales and affordability will continue to be a concern for housing in 2017," said Sean Becketti, Freddie Mac chief economist in the most recent Primary Mortgage Market Survey.
For the week concluding on Dec. 29, 30-year FRMs averaged 4.3 percent, up three-tenths of a percent this time last year, Freddie Mac revealed from the latest PMMS.
Perhaps unsurprisingly, given that home prices are influenced by demand, especially in highly populated locations, low asking prices were few and far between in several of the nation's largest cities. New York City, Dallas and San Francisco during the fourth quarter all had affordability index levels below their historical averages at 91, 93 and 93, respectively. Any number under 100 on ATTOM Solutions Affordability Index suggests for-sale houses are selling for more than what has been the norm over the long term. The affordability index was 103 for the country as a whole.
Low-priced houses increasingly harder to find
Location is the ultimate determinant of what properties are going for on the market, as highly sought-after areas of the country tend to be at the higher end of the price spectrum. Prospective buyers may be debating whether they should remain on the sidelines for the time being, until price and rate increases cool off. But ATTOM Solutions' senior vice president doesn't expect that easing to happen in the short-term future.
"The prospect of further interest rate hikes in 2017 will likely cause further deterioration of home affordability next year, Blomquist opined. "Absent a strong resurgence in wage growth, that will put downward pressure on home price appreciation in many local markets."
In over 80 percent of the counties analyzed, home prices grew faster than income levels, the report said.
Some may consider renting as the way to go as an alternative to buying, at least for now. But even here, affordability is limited. In two dozen cities, rental rates are on the rise, moving at a pace that's "marginally slower" than houses sold, noted a report conducted by researchers from Florida Atlantic University and Florida International University.
Nevertheless, economists in general – and the university researchers in particular – say it's a more financially advantageous move to buy than it is to rent, despite the pace at which home prices are climbing.
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