Are Home Prices Rising Too Fast?

Some housing analysts are concerned that the sudden rise in home prices could make homes more unaffordable again if the price increases outpace income growth, The Wall Street Journal reports.

Average housing costs for home buyers who took out a mortgage were around 22.5 percent of average incomes, according to John Burns Real Estate Consulting. That is down from 38.5 percent in 2006, the peak of the housing bubble. The historical average is about 33 percent.

But with home prices rising in many markets and, in some, rising at a faster pace than income levels, will more people soon be priced out of the market?

Housing analysts say that, for now at least, lower mortgage rates are offsetting the higher prices of homes.

Borrowers have seen their purchasing power rise by around 33 percent over the past four years due to the low interest rates, The Wall Street Journal reports. For example, a borrower can make a $1,000 monthly mortgage payment and qualify for a $222,000 mortgage at today’s low interest rates, compared to 2008 when they’d likely qualify for $165,000 when mortgage rates were around 6.1 percent — nearly double what they are today.

Borrowers are able to withstand home-price increases because of the low rates, not because household incomes are growing, The Wall Street Journal reports. If mortgage rates tick back up to the 6 percent or 8 percent range, homes may look overpriced relative to incomes, according to housing analysts.

Source: “Why Rising Interest Rates Could Eventually Curb Price Gains,” The Wall Street Journal (April 10, 2013)

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Americans Expect Home Prices and Mortgage Rates to Increase

This is a reprint of a News Release from Fannie Mae. Click here to read the full release on the Fannie Mae website.

A house on moneyConsumer attitudes toward the economy and housing continue to diverge this winter, according to Fannie Mae’s February 2013 National Housing Survey results. On the one hand, consumers continue to express strong positive attitudes toward housing. On the other hand, sentiment about the economy and household finances is stalled. Average 12-month home price expectations and the share of consumers who believe home prices will go up over the next year both rose to record highs, and the percentage of Americans who say mortgage rates will rise reached its highest level since August 2011. At same time, Americans’ views on their personal financial situation, household income, and the direction of the economy fell or remained flat.

“Despite fiscal headwinds and political uncertainty, consumer sentiment toward housing is robust and continues to gather strength,” says Doug Duncan, senior vice president and chief economist at Fannie Mae. “We expect home prices to firm further amid a durable housing recovery, gradually reducing the population of underwater borrowers and helping to boost the share of consumers who say that now is a good time to sell.”

“Since reaching its trough last September, the share of consumers expecting mortgage rates to rise has trended up,” continues Duncan. “However, despite historically low mortgage rates, nearly half of borrowers have never refinanced their mortgage. Combined with the scheduled year-end HARP deadline, rising rate expectations should prompt some borrowers to refinance soon to take advantage of more favorable mortgage terms and add to their disposable income, helping to offset ongoing fiscal drag.”

Survey Highlights

Homeownership and Renting

  • The average 12-month home price change expectation increased 0.5 percent over last month to 2.9 percent, the highest level since the survey’s inception.
  • At 48 percent, the share who believe home prices will go up in the next 12 months also reached a survey high, while the share who believe home prices will go down held steady at the survey low of 10 percent.
  • The percentage who think mortgage rates will go up increased by 4 percentage points to 45 percent, the highest level since August 2011, while those who think they will go down held steady at 7 percent.
  • Twenty-five percent of respondents say it is a good time to sell a house, the highest level since the survey’s inception in June 2010.
  • At 3.9 percent, the average 12-month rental price change expectation increased 0.2 percent over January.
  • Fifty percent of those surveyed say home prices will go up in the next 12 months, holding steady from January at the highest level since the survey’s inception.
  • The share of respondents who said they would buy if they were going to move increased by 2 percentage points to 67 percent.

The Economy and Household Finances

  • At 38 percent, the share of respondents who say the economy is on the right track has held steady over the past three months.
  • The percentage who expect their personal financial situation to get better over the next 12 months fell by 2 percentage points to 41 percent.
  • Twenty-one percent of respondents say their household income is significantly higher than it was 12 months ago, a 2 percentage point decrease from last month.
  • Thirty-one percent report significantly higher household expenses compared to 12 months ago, a 7 percentage point decrease and the lowest level since June 2010.
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Economists Revise Housing Figures Amid Optimism

Several economists have recently revised their predictions on housing values to reflect a stronger-than-expected real estate rebound, and some have even doubled their original forecasts over the rise in home prices. For example, economists at Bank of America revised their home price forecast from 4.7 percent this year to 8 percent.

Capital Economics’ Economist Paul Diggle upwardly revised his home price forecast too, from a 5 percent projection to an 8 percent rise in home prices this year.

“Prices of both new and existing homes are picking up, the latter by over 10 percent year-on- year,” Diggle notes. “Indeed, after a couple of years during which new house prices outperformed, primarily owing to builders constructing more homes for the higher-end market, we now expect existing house prices to close the gap. As more consumers are able to access mortgage credit, home builders should widen their offering, while continued investment demand will bid up existing house prices.”

Consumers are growing more optimistic about home prices too. A recent report of consumers from mortgage giant Fannie Mae showed that 48 percent believe home prices will rise over the next year.

Ivy Zelman, an independent real estate analyst, told CNBC last week that “we’re in a nirvana for housing. I’m the most bullish I’ve ever been.” Zelman said that home prices could rise for another four to six years.

Source: “Why A Bunch Of Economists Expect The US Housing Market To Go On A Huge Tear,” Business Insider (March 8, 2013)

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Foreclosure, REO Home Prices Rise

Average sale prices for homes in foreclosure and those owned by banks rose 1.6 percent in the second quarter compared to the first quarter and 6.1 percent year over year, according to RealtyTrac, a foreclosure marketing service.

The average price of these homes in the second quarter was $174,198 nationwide, but was significantly higher in California where the average price, according to RealtyTrac, was $256,833. These prices reflected homes sold by lenders or by homeowners who had received at least one notice of default.

About 24 percent of all properties sold in the second quarter were REOs and foreclosures. Their prices were on average 26 percent lower than those of homes not in foreclosure, RealtyTrac reported.

RealtyTrac Senior Vice President Rick Sharga projected that it would be the end of 2013 before the housing marked works its way through the foreclosure inventory.

Source: Los Angeles Times, Alejandro Lazo and Daily Finance, Hugh Collins (09/30/2010)

  • REDUCED: 7202 Churchill Rd, McLean

    Open House, Sunday, 1-4 BIG PRICE DROP! 7202 CHURCHILL ROAD McLean, VA 22101 6 Bedrooms 5.5 Bathrooms 6,752 SF $1,695,000

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  • [FWD: The Empire Strikes Back Pictures]

    We played a game at the office this Sunday. Lots of fun. Sincerely, Will Nesbitt Principal Broker   Nesbitt RealtyAlexandria VA licensed in the Commonwealth of Virginia and the State of Maryland 703 765 0300 (main) 571 237 7902 (direct)888 783 6391 (fax) ——– Original Message ——– Subject: The Empire Strikes Back Pictures From: [email protected]

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  • Good Shepherd Housing and Family Services

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    Established in 1974 with a mission to reduce homelessness, increase community support and promote self sufficiency, the Good Shepherd Housing and Family Services is operated by a multi-denominational board of directors and staff managing over 70 housing units. Good Shepherd Housing and Family Services is located in the Mount Zephyr Business Center at 8305 Richmond…

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  • Mistake 4: Acting too picky.

    We help buyers and sellers.
    While you should narrow down what you want and you list features most important to you, don’t be so inflexible that you make it impossible to find a home. If you’re too picky, you may have to continue renting when you could own a home. Be willing to compromise on some of the less important…

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Home Prices Continue Gains Over 2009

U.S. home prices, including distressed sales, increased by 2.9 percent compared to the same month last year, according to CoreLogic in its monthly index.

May was the fourth straight month prices showed a year-over-year increase.

“Home price appreciation stabilized as home buyer tax credit-driven sales peaked in late spring,” says Mark Fleming, chief economist for CoreLogic. “But given that the labor market and income growth remain tepid, we expect prices to moderate and possibly decline the rest of the year.”

Source: CoreLogic (07/13/2010)

  • REDUCED: 7202 Churchill Rd, McLean

    Open House, Sunday, 1-4 BIG PRICE DROP! 7202 CHURCHILL ROAD McLean, VA 22101 6 Bedrooms 5.5 Bathrooms 6,752 SF $1,695,000

    Read More

  • [FWD: The Empire Strikes Back Pictures]

    We played a game at the office this Sunday. Lots of fun. Sincerely, Will Nesbitt Principal Broker   Nesbitt RealtyAlexandria VA licensed in the Commonwealth of Virginia and the State of Maryland 703 765 0300 (main) 571 237 7902 (direct)888 783 6391 (fax) ——– Original Message ——– Subject: The Empire Strikes Back Pictures From: [email protected]

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  • Good Shepherd Housing and Family Services

    Fairfax County
    Established in 1974 with a mission to reduce homelessness, increase community support and promote self sufficiency, the Good Shepherd Housing and Family Services is operated by a multi-denominational board of directors and staff managing over 70 housing units. Good Shepherd Housing and Family Services is located in the Mount Zephyr Business Center at 8305 Richmond…

    Read More

  • Mistake 4: Acting too picky.

    We help buyers and sellers.
    While you should narrow down what you want and you list features most important to you, don’t be so inflexible that you make it impossible to find a home. If you’re too picky, you may have to continue renting when you could own a home. Be willing to compromise on some of the less important…

    Read More