Rising home prices are causing affordability issues for buyers, but how might housing availability factor into the equation?
2020 was a rough year that none of us want to relive, but homeowners were rewarded well for living through it. According to Zillow, housing gained nearly $2.5 trillion in value last year, making it the most significant single year since 2005.
Zillow went even further by predicting that home prices could gain even more in 2021. And this wasn’t the only team that was excited about the housing data coming to light.
The S&P CoreLogic Case-Shiller Index data for December surged to 10.4%, its first double-digit increase since January 2014. The model took into account full year data for 2020.
In addition, Redfin released its January numbers, which showed home prices up 14% as sales surged 20%.
What does all of this say about housing affordability? Well, it’s not that great right now. According to Jon Gorey, the Boston Globe’s housing correspondent, “Realtors and housing experts are warning of a difficult spring for first-time home buyers. Prices had climbed for seven straight years before skyrocketing during the pandemic.”
Gorey quotes Alex Hermann, senior research analyst at Harvard’s Joint Center for Housing Studies, who told him that housing affordability was already at the worst level since 2006, with national price-to-income ratios rising each year for the past eight years.
None of that is particularly good, but the Globe goes on to talk about some of the things I’ve been talking about here. First, low interest rates are making even expensive homes more affordable and second, and this was in the headline, availability is the new affordability when it comes to home buying. For this, Gorey quoted Dana Bull, a Massachusetts realtor.
“The main talking point now is there’s nothing to buy. People are willing, and able, in a lot of these situations, to spend $900,000 or a million dollars on a property that they deem worth it. But that’s the issue, finding a property that’s worth it when there’s nothing to choose from.’’
In a normal year, we might be looking at home prices on the rise and worry more about affordability. This year, it will not likely be the issue that dampens housing industry growth.
By Joe Camerieri, EVP, Client Account Management at Mortgage Cadence
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