Home prices rose strongly in the lion’s share of U.S. metro areas in the fourth quarter of 2013, data from the NATIONAL ASSOCIATION OF REALTORS® shows. As homes became more expensive, however, they became less affordable, particularly for Western homebuyers.
The national median existing single-family home price was $196,900 in the fourth quarter, up 10.1% from $178,900 in the fourth quarter of 2012. The median price is where half of the homes sold for more and half for less.
Home prices rose in 73% of the 164 metro markets NAR tracks. In 26% of those metro areas, the increase was in the double-digits.
There are two ways of looking at the price gains, said NAR Chief Economist Lawrence Yun. “The vast majority of homeowners have seen significant gains in equity over the past two years, which is helping the economy through increased consumer spending,” he said. “At the same time, home prices have been rising faster than incomes, while mortgage interest rates are above the record lows of a year ago. This is beginning to hamper housing affordability.”
Most Expensive Housing Markets
Homebuyers were feeling the pinch of rising prices in the five most-expensive housing markets in the fourth quarter:
|San Jose, Calif.||$775,000|
|Anaheim-Santa Ana, Calif.||$666,300|
Least Expensive Housing Markets
The most affordable market for homebuyers were:
|South Bend, Ind.||$101,100|
Fewer Distressed Home Sales
Home prices are strongly influenced by how many sellers are distressed — either in foreclosure or doing a short sale where they sell their home for less than what they owe on the mortgage. Because they sell at a discount, distressed sales hold down median home prices.
In the fourth quarter, 14% of home sales were distressed, down from 24% a year ago.
The supply of homes for sale also influences home prices. As supplies fall, prices rise. A lack of homes for sale accounted for double-digit price growth in many areas, Yun said.
The average supply of homes for sale during the fourth quarter was 4.9 months. It was 4.8 months in the fourth quarter of 2012. A supply of 6.0 to 6.5 months represents a rough balance between buyers and sellers. With fewer than 5.0 months of supply, many markets are now tilted toward sellers.
“New home construction activity needs to increase significantly in the fast appreciating markets to help relieve upward price pressure,” Yun said. In 2013, housing starts totaled 924,000, well below the historic average of 1.5 million units that typically are needed.
“Added housing supply will help moderate price growth this year, and should help to stem erosion in affordability, but mortgage interest rates are projected to rise above 5% by the end of the year,” Yun said. When rates rise, homebuyers pay more to borrow money, so the same monthly payment will only cover the monthly cost of a lower-priced home.
NAR President Steve Brown said consumers need to keep in mind that all real estate is local. “The national figures provide useful background, but it really gets down to supply and demand in a given neighborhood,” he said. “Metropolitan area figures are an excellent gauge of local housing markets, but there can be widely ranging conditions within a metro area. This is why it’s best to consult with a REALTOR®, who has additional resources and can provide much greater detail on specific locations.”
How Affordable are Homes?
NAR’s national annual Housing Affordability Index measures the relationship between median home price, median family income, and average effective mortgage interest rate. The higher the index, the stronger household purchasing power.
When the index is at 100, a median-income household has exactly enough income to buy a median-priced home with a 20% downpayment and a mortgage payment using 25% of the household’s gross income.
Home affordability is highest in:
|Lansing-East Lansing, Mich.||331.4|
Condo Prices Up 10.7%
Condominiums and cooperative prices in the 55 metro areas NAR tracks rose 10.7% in the fourth quarter. The national median existing-condo price was $197,200, and 44 metro areas showed price increases.
Regional Fourth-Quarter Median Prices
|Median Price Compared
with Q4 2012
|Northeast||Down 7.1%||$241,000||Up 5.5%|
|Midwest||Down 9.1%||$152,400||Up 7.0%|
|South||Down 4.4%||$173,000||Up 8.3%|
|West||Down 12.7%||$286,200||Up 15.5%|