Housing Market Peaks As Interest Rates Are Pushing Homes Out Of Reach
With 6 years of house-price gains outpacing wage growth, bidding wars replaced by sales at the asking price; days or weeks on the market turning into months; rising mortgage rates. First-time buyers start to get priced out, making it harder for move-up buyers to sell, and the slowdown ripples gradually up the real estate food chain.
Every single market in the country has an entry-level problem and most metropolitan areas are facing an affordable housing crisis.
While U.S. home prices have gained almost 60 percent since 2012, according to the S&P Case-Shiller 20-City Composite Index, household income is up a little less than 30 percent in the same period, Bureau of Economic Analysis data shows. The average rate for a 30-year fixed mortgage rose from about 3.85 percent at the start of 2018 to about 4.74 percent currently, with new reports expecting it to rise further next year.
A half-point increase on a mortgage means cutting the price by about $25,000 and the size of the house by as much as 200 square feet. In cities like Portland, Seattle, San Francisco and Boise, where prices have gained the most, an increase of as little as half a percentage point in the borrowing rate can be the difference between buying and continuing to rent.
Higher rates hit first-time buyers the hardest. Savvy millennials who didn’t purchase in spring when rates were around 3.8% are left facing a potentially long wait, with rent prices also outpacing wage growth in many areas, it’s a real dilemma for the first time buyers and entry level home buyers market.
The biggest home-price gains in the country have been in cities where demand is tied to the stock performance of the biggest employers.
In metros like San Jose, San Francisco, Seattle, where wages are more closely tied to how tech stocks are doing, that’s where prices have gone up the most.
There’s a chance that Seattle prices could start to decline next year, especially as higher mortgage rates curb demand, Seattle properties are staying on the market longer, and selling for the asking price, even as inventory remains low with Portland trailing not to far behind.
We’ll continue to keep a close eye on interest rates, job growth and tech stock’s influence on house prices, and dive deeper in our 2018 market report to be published in December.