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Affordability In The Housing Market
Friday, August 24, 2018
With real estate prices so high, this is perhaps the most difficult period of time to purchase a home in the past decade. For much of 2017 and 2018, we have, without a doubt, been in a strong seller's market. Prices aren't quite at bubble levels, but some experts say they may be headed there. Others say that a slowdown is on the horizon. Senior VP at Attom Data Solutions, Daren Blomquist believes the main reason for this price boom is appreciation. Although it has slowed in recent years Blomquist points out, “home price appreciation continued to outpace wage growth.”
With the balance between housing prices and wages interrupted, it may seem as if the prices of homes are high, when in fact, they are simply disproportionate to the current wages in many areas. This disparity has led to a tipping of the scales, so to speak, with home prices rising quicker than wages in nearly 64% of all local markets. According to a survey performed by Attom, prospective buyers earning average wages were unable to afford medium priced homes in nearly 75% of the areas in question.
This imbalance, along with other issues such as the low supply of homes, and the banks' willingness to supply loans have contributed greatly to this rise in prices. This seller's market is particularly bad news for new prospective homeowners. Many of the young families looking to purchase their first home are faced with the sour reality that moving into their dream may not be feasible at this time.
Those wishing to sell their home in order to downsize, such as retirees, may be thinking, “This is the time to sell my house. With the prices this high, if I don't sell my house now, I may be passing a great opportunity.” They may be right in selling now, as with every peak, comes a dip. Many real estate experts are forecasting a great slow-down and a return to a buyers market. After years of steady price gains, the market seems to have reached a limit as to what is generally affordable. This means that it is more common to see sellers respond to lower offers.
A report by Zillow shows that 14% of listings this past June saw a reduction in price. For comparison, the number of listings with price cuts was at 11.7% in the later months of 2016. Could this be the sign of a dip in the market and a natural return to normalcy? After the giant crash of last decade, is “normalcy” even possible? The only thing we can do is keep our eyes out and compare what's happening in today's market with the trends of the past.