What 110 Months of Price Gains Is Doing to the Housing Market

What 110 Months of Price Gains Is Doing to the Housing Market

(Source: millionacres.com)

Jun 02, 2021 by Aly J. Yale

Home prices have been rising steadily for years -- over nine of them, in fact. And now, the nation’s median home price clocks in at a jaw-dropping $341,600, up 19% from April 2020 and the highest point on record.

The steep increases have had sweeping effects on the market, sidelining hopeful homebuyers, reducing overall affordability, and sending average loan balances upward. For those who already own properties, the hikes have been a boon -- both to selling ROIs and equity gains.

What’s more? Those price gains aren’t slowing anytime soon. According to Freddie Mac’s forecast, home prices will rise 6.6% this year and another 4.4% next year.

Are you planning on making some real estate moves this year? Here’s what these continued price gains mean for the market:

Existing home sales are declining (at least monthly)

At this point, some buyers have been priced out, and others are simply unable to find an affordable property in such a low-supply market. However, you slice it, though, existing home sales are down, at least month over month.

According to the National Association of Realtors, existing home sales fell 2.7% between March and April. It was the third month-over-month decline in a row.

To be fair, sales are still up over last year-- by 20% -- but remember, one year ago was just the start of the pandemic. Home sales were in quite the lull at this time (during the first week of April, purchase loan applications were down 33%).

Overall affordability is down

Mortgage rates are still historically low. Just this week, rates on 30-year fixed-rate loans slipped below 3% again, hitting 2.95%, according to Freddie Mac.

Unfortunately, they’re not enough to offset such steep price increases. In fact, according to the recent Real House Price Index from First American, housing affordability fell for the first time in two years this March. Overall consumer house-buying power is down 2.5%, and “real” house prices — which take into account home prices, incomes, and mortgage rates — are 4.2% more expensive than in February.

Average loan balances are rising

Naturally, as home prices rise, homebuyers need to borrow more to purchase a house. This is wildly apparent in the latest data from Mortgage Bankers Association, which has the average new purchase loan balance sitting at a whopping $411,400. It’s the highest average in months, according to Joel Kan, MBA’s vice president of economic and industry forecasting.

Equity is hitting all-time highs

Property owners are the real winners these days. As prices rise, home equity levels have skyrocketed. According to ATTOM Data Solutions, nearly 18 million residential properties are currently equity-rich, meaning the loans that secure them are 50% or less of the home’s value. This amounts to about 32% of all homes, up from 30.2% in Q4 2020 and 26.5% at the start of 2020.

"It continues to be a great time to be a homeowner most everywhere in the country," said Todd Teta, chief product officer with ATTOM Data Solutions. "The ongoing price spikes we’re seeing help to cut down the number of seriously underwater properties and boost the level of equity-rich properties."

Sellers are making serious profits

The average home seller is making a profit margin of 34% these days. That’s up from 31% a year ago and amounts to about $70,000 per sale.

In some areas, profit margins are even higher. In Knoxville, Tennessee, for example, sellers are making a whopping 122.1% on their homes. In nearby Nashville, it’s 92.1%.

Only a mere 18 out of the 149 biggest metros saw seller profit margins drop over the year.

The bottom line

As you can see, rising home prices are having a widespread impact -- on buyers, sellers, and investors. Check out our latest real estate trends report to learn more about what’s going on in the housing market.