The National Association of Realtors (NAR) released their latest quarterly report Tuesday, highlighting upwards trends in existing family home prices. An additional annual affordability report showed less favorable conditions for home affordability.
The report revealed an increase in existing single-family home price in 73 percent of measured markets, citing 119 of 164 metropolitan areas showing gains based on closings in the fourth quarter. While still a positive trend in pricing, there were fewer price increases as seen in the third quarter with an 88 percent increase from a year earlier.
Lawrence Yun, NAR chief economist, said there are two ways of looking at the price gains. "The vast majority of homeowners have seen significant gains in equity over the past two years, which is helping the economy through increased consumer spending," he said. "At the same time, home prices have been rising faster than incomes, while mortgage interest rates are above the record lows of a year ago. This is beginning to hamper housing affordability."
The national median existing single-family home price was $196,900 in the fourth quarter, up 10.1 percent from $178,900 in the fourth quarter of 2012. In the third quarter, the median price rose 12.5 percent from a year earlier.
Yun noted that a tight supply of existing homes and a decrease in production of new homes are two driving factors in the elevated prices.
"New home construction activity needs to increase significantly in the fast appreciating markets to help relieve upward price pressure,” Yun said. In 2013, housing starts totaled 924,000, well below the historic average of 1.5 million units.
Yun continued: "Added housing supply will help moderate price growth this year, and should help to stem erosion in affordability, but mortgage interest rates are projected to rise above 5 percent by the end of the year."
Steve Brown, NAR President and co-owner of Irongate, Inc. Realtors, cautioned consumers to keep in mind that all real estate is local. "The national figures provide useful background, but it really gets down to supply and demand in a given neighborhood," he said. "Metropolitan area figures are an excellent gauge of local housing markets, but there can be widely ranging conditions within a metro area."
The NAR also released its Housing Affordability Index (HAI). The index reported a decrease in affordability, noting a score of 175.8 in 2013 from a record high 196.5 in 2012.
An index of 100 is defined as the point where a median-income household has exactly enough income to qualify for the purchase of a median-priced existing single-family home, assuming a 20 percent down payment and 25 percent of gross income devoted to mortgage principal and interest payments.
In each of the four regions listed in the HAI, total existing home sales declined.
Particularly notable was the West Region, where existing-home sales dropped 12.7 percent in the fourth quarter, and are 8.1 percent below a year ago.
Due to the decline of available homes, the median existing single-family home price in the West jumped 15.5 percent to $286,200 in the fourth quarter from the fourth quarter of 2012.