January 18th, 2018
House prices are determined by housing supply, housing demand, and housing affordability.
Housing Supply: What's the Outlook?
Housing supply measures how many months it would take to sell all the houses currently listed for sale, at the current pace of home sales. For example, if there are 600 homes currently listed for sale, and an average of 100 homes are selling each month, there would be a 6-month housing supply. This is because it would take 6-months to sell all the homes currently listed for sale.
A buyer’s market is anything more than 6 months. A seller’s market is anything less than 6 months. In this case, sellers would have greater negotiating power, and buyers may have to bid higher than list price in order to compete with multiple offers.
Housing supply has been running below 6 months across the US since 2012. This indicates a seller’s market. In many parts of the country, buyers are competing with multiple offers… in some cases dozens of offers on the same house. This tells us that house prices are poised to continue going up in the next several months.
Housing Demand: What's the Trend?
Housing demand tends to slow down in the winter because most home sales occur during the spring and summer. Even so, housing demand is expected to remain strong because the economy is doing well and people have jobs in most parts of the country. The chart to the right illustrates how there are more jobs available today than at any point in the past 15 years as measured by the Job Openings and Labor Turnover Survey (JOLTS) report.
Housing Affordability: Can Buyers Afford Houses at Current Prices?
The National Association of Realtors (NAR) publishes a "Housing Affordability Index".
While housing affordability for move-up homebuyers is still near record highs, housing affordability for first-time homebuyers is a challenge. Today's index value of 99.7 on the National Association of Realtors First-time Homebuyer Affordability Index means that a family earning the median family income is right on the borderline of being able to qualify for a home loan. While this situation is not nearly as bad as it was for all homebuyers throughout the 1980s, there is still cause for concern.
Potential solutions for these buyers to consider could include the use of gift funds from relatives for a down payment, and/or the use of a low-down payment program. Also, keep in mind that recent statistics show that buying a home is still more affordable than renting a home for many first-time buyers. While house prices and mortgage payments may be higher than what many first-time buyers would like to see, the monthly payments are often on par with what they would otherwise pay in rent.
Of course, housing affordability in your situation could be higher or lower depending on the amount of your down payment and the mortgage strategy you choose.
Conclusion: we anticipate an increase in house prices over the next several months because housing supply is likely to remain low, housing demand is likely to remain strong, and houses will continue to remain affordable for most buyers. Please contact me for specific information on housing supply, housing demand and housing affordability in your local market.