Recent news reports indicate the housing market for home price growth may be losing momentum in the largest cities. As we take a deeper look at the numbers, it’s also a good time to analyze the market drivers.. Who are the current homebuyers and is that pool expanding or contracting?
According to the S&P Corelogic Case-Shiller U.S. National Home Price Index, home prices rose 3.2% nationally in the year ending in July, which was the same gain the previous month. In the largest cities, however, prices are slowing. The gain in the 20-city index slowed to 2%, from 2.2% the prior month.
The Income Gap
The Wall Street Journal recently published a report that showed how the different tiers of wealth have performed over the past four decades. The middle and lower tiers have shrunk, while the rich have gotten richer.
Here are some interesting facts from the report:
- The average wage for the upper tier has risen from $38/hour to $53/hour; the middle tier wage has only increased from $21/hour to $22/hour; and the lower tier remains unchanged at $11/hour.
- The upper tier has expanded from 14% to 19%, while the middle has dropped from 61% to 52% and the lowest income tier has increased from 25% to 29%.
How does this affect the housing market? In terms of the steady increase in home prices since 2012, the affordability gap is apparent. The majority of the jobs available are at the bottom of the wealth pyramid–hourly, contract, or temp, which may not provide health insurance and other benefits. This data suggests that the overall homebuyer pool may be shrinking.
Many two-income families choose to rent and invest in rental properties in more affordable locations, which is a great way to be active in home ownership while still being able to afford the mortgages. Rental properties on the coasts continue to be expensive. An investor can get more bang for their buck in growing markets such as Atlanta, Dallas, or Charlotte.
2019 Homebuying Market Snapshot
Owning a home has proven to be a far stretch for many individuals in this economic climate, especially in larger markets where average home prices exceed the national average of $315,000 by a decent margin. There is no clear answer to this problem as many higher paying manufacturing jobs are being replaced by lower paying hourly jobs. There is hope for first-time buyers in the future if home prices stabilize.
- Home prices are still on the rise. Since 2012, home prices have been on the rise, and that’s not expected to change. However, the home price growth rate has slowed but they are still beyond the reach of many first time home buyers.
- Millennials account for the largest share of mortgage originations. More than half of last year’s mortgage originations by Fannie Mae and Freddie Mac reportedly went to first-time homebuyers. The National Association of Realtors reported that millenials made up 37% of all homebuyers and 20% of all sellers last year.
- Mortgage interest rates are low. Earlier this month, the average cost of a long-term home loan in the U.S. dropped to the lowest level in almost three years, at 3.5%. This summer, refinancing accounted for a large portion of mortgage transactions.Lower rates are allowing some more families to come in to the homebuying market because of the reduced monthly payments.
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