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Rising home prices sting the affordable-housing market

by  | Corporate
Posted:     Updated: Jun 29, 2016  12:12 ET
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Several recent reports published within days of one another all paint a pretty rosy picture for housing prices across the nation. The S&P/Case-Shiller Home Price Indices released June 28 show that national home prices continued to rise at an annual rate of 5 percent as of this past April.Rsing home prices

A separate home price index (HPI) report from Black Knight Financial Services released a day earlier indicates that home prices have increased 5.4 percent from one year ago. The Black Knight HPI report for April also states that the current national HPI is just 2.9 percent below its June 2006 peak. According to the report, five states and over a dozen large metro areas have already reached their prerecession housing-price peak HPI.

The Summer 2016 Housing and Mortgage Market Review (HAMMR) report released by Arch MI on the same day as the S&P indices claims there is a 95 percent chance that housing prices will continue to increase across the nation, with a few notable exceptions, over the next two years, and home prices will actually outpace inflation. If the HAMMR data holds true, housing prices for most of the nation could soon reach levels not seen since before the housing crash.

This is great news for existing households that are looking to build wealth for the future, and for those homeowners who are looking to refinance, because increased home equity can help secure lower interest rates or remove mortgage insurance. Unfortunately, rising prices, caused at least in part by lack of supply, are making it harder to purchase a new home, especially for entry-level homeowners.

An Urban Institute report estimates that housing supply fell 430,000 units behind demand in 2015. There were 968,000 housing starts in 2015 but more than a million new households created, according to the report. Although this may seem like construction is nearly keeping up with demand, the report estimates that 418,000 existing housing units were lost for various reasons, a stat based on a previous study. This leaves a huge gap in supply to address rising demand.

The HAMMR data supports the existence of this supply gap. The report's high confidence in rising prices over the next two years is based, in part, on "net household formation outpacing new supply." All of this data points to one inevitable and dire concern: First-time homebuyers, and lower-income households in general, will have an increasingly hard time finding affordable housing for the foreseeable future.

This conclusion is supported by data released recently by Zillow. The Zillow press release states that prices for bottom-tier homes are growing at 8 percent per year, over 1.5 times the national rate and, according to the report, twice as fast as homes in the top tier. In addition, the number of entry-level homes on the market is falling by 9 percent per year, adding to the pressure.

This lack of supply may also be adding upward pressure on rents, which rose 2.9 percent over the past year, according to the Zillow report. A different Zillow report found that rents on apartments in more expensive areas aren't rising as quickly, however.

The demand for affordable housing will only increase as millennials continue to move into the housing market. The HAMMR report states: "Given the shortage of supply, home prices would be growing even faster if not for the hurdles faced by many first-time homebuyers, such as high student debt and stagnant wages."

Ironically, the demand for affordable-rental units may also be set to expand due to households at the other end of the age spectrum. According to a recent Freddie Mac report, over 5 million baby boomers expect to rent their next home within the next four years. This additional influx of renters could put even more strain on an already stressed rental market. An influx of 5 million more homes entering the housing market, however, could help ease the issue of affordable housing. Only time will tell.


Will McDermott is editor of Scotsman Guide Residential Edition. Reach him at (800) 297-6026 or
Topics: Residential economy | Residential lending
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Rising home prices sting the affordable-housing market

by Scotsman Guide Media | Corporate
Posted: Jun 29, 2016  12:10 ET    Updated: Jun 29, 2016  12:12 ET

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