Housing Supply Crunch Accelerates Metro Home Price Growth during Third Quarter
WASHINGTON (November 3, 2016) — Persistent supply shortages throughout the country led to slightly faster home price appreciation during the third quarter, according to the latest quarterly report by the National Association of Realtors®. The report also revealed that seven of the 10 most expensive housing markets in the U.S. are in the West, including San Jose, California, which had a median single-family home price of $1 million for the second straight quarter.
The median existing single-family home price increased in 87 percent of measured markets, with 155 out of 178 metropolitan statistical areas1 (MSAs) showing gains based on closed sales in the third quarter compared with the third quarter of 2015. Twenty-two areas (12 percent) recorded lower median prices from a year earlier.
There were a growing number of rising markets in the third quarter compared to the second quarter of this year, when price gains were recorded in 83 percent of metro areas. Twenty-five metro areas in the third quarter (14 percent) experienced double-digit increases — unchanged from the second quarter of this year. A year ago, 21 metro areas (12 percent) saw double-digit price appreciation.
Lawrence Yun, NAR chief economist, says prospective buyers faced a very challenging market during the third quarter. "Mortgage rates around historical lows and solid local job creation created a winning formula for sustained homebuying demand all summer long," he said. "Unfortunately for house hunters in several of the top job producing metro areas around the country, deficient supply levels limited their options and drove prices higher — especially in markets in the West and South."
The national median existing single-family home price in the third quarter was $240,900, which is up 5.2 percent from the third quarter of 2015 ($228,900) and surpasses this year's second quarter ($240,700) as the current peak quarterly median sales price. The median price during the second quarter increased 4.9 percent from the second quarter of 2015.
Total existing-home sales2, including single family and condos, slid 2.2 percent to a seasonally adjusted annual rate of 5.38 million in the third quarter from 5.50 million in the second quarter of this year, and are 0.4 percent lower than the 5.40 million pace during the third quarter of 2015.
"After climbing to their highest annual pace in over nine years in June3, sales sputtered in the third quarter because inventory could not catch up with what was being quickly sold," said Yun. "Only a decent rebound in September kept the monthly and annual sales declines from being even larger."
At the end of the third quarter, there were 2.04 million existing homes available for sale4, which was 6.8 percent below the 2.19 million homes for sale at the end of the third quarter in 2015. The average supply during the third quarter was 4.6 months — down from 4.9 months a year ago.
Despite faster price growth last quarter, the decline in mortgage rates and an uptick in the national family median income ($70,306)5 slightly improved affordability compared to a year ago. To purchase a single-family home at the national median price, a buyer making a 5 percent down payment would need an income of $51,661, a 10 percent down payment would require an income of $48,942, and $43,504 would be needed for a 20 percent down payment.
"If mortgage rates start to rise heading into next year, prospective buyers could face weakening affordability conditions in their market unless supply dramatically improves," added Yun. "That's why it's absolutely imperative that homebuilders ramp up the production of more single-family homes to meet demand and slow price growth."
The five most expensive housing markets in the third quarter were the San Jose, California, metro area, where the median existing single-family price was $1,000,000; San Francisco, $835,400; urban Honolulu, $745,300; Anaheim-Santa Ana, California, $740,100; and San Diego, $589,300.
The five lowest-cost metro areas in the third quarter were Youngstown-Warren-Boardman, Ohio, $90,300; Cumberland, Maryland, $94,400; Decatur, Illinois, $99,400; Elmira, New York, $109,400; and Rockford, Illinois, $111,900.
Metro area condominium and cooperative prices — covering changes in 59 metro areas — showed the national median existing-condo price was $225,100 in the third quarter, up 4.6 percent from the third quarter of 2015 ($215,200). Forty-one metro areas (69 percent) showed gains in their median condo price from a year ago; 17 areas had declines.
NAR President Tom Salomone, broker-owner of Real Estate II Inc. in Coral Springs, Florida, says the Federal Housing Administration's recently-announced rule change to lower the owner-occupancy requirement for approved condominium buildings from 50 percent to 35 percent under certain conditions is a step forward for prospective buyers considering a condo.
"Condos have typically been an attractive and viable option for first-time buyers, and recent NAR data is showing that they're having a little more success," he said. "With this lower owner-occupancy requirement, Realtors® will have more options for their clients looking to purchase a condo with an FHA mortgage. While we believe all condo buildings should have the rules applied to them equally, we also believe FHA has heard the concerns of Realtors® and is moving in the right direction."
Total existing-home sales in the Northeast dropped 7.5 percent in the third quarter and are now 1.9 percent below the third quarter of 2015. The median existing single-family home price in the Northeast was $272,600 in the third quarter, up 1.2 percent from a year ago.
In the Midwest, existing-home sales decreased 4.2 percent in the third quarter but are 1.0 percent above a year ago. The median existing single-family home price in the Midwest increased 5.6 percent to $191,200 in the third quarter from the same quarter a year ago.
Existing-home sales in the South declined 2.7 percent in the third quarter and are 0.9 percent lower than the third quarter of 2015. The median existing single-family home price in the South was $213,700 in the third quarter, 6.5 percent above a year earlier.
In the West, existing-home sales increased 4.6 percent in the third quarter and are unchanged from a year ago. The median existing single-family home price in the West increased 7.6 percent to $349,200 in the third quarter from the third quarter of 2015.
The National Association of Realtors®, "The Voice for Real Estate," is America's largest trade association, representing over 1.1 million members involved in all aspects of the residential and commercial real estate industries.
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NOTE: NAR releases quarterly median single-family price data for approximately 175 Metropolitan Statistical Areas (MSAs). In some cases the MSA prices may not coincide with data released by state and local Realtor® associations. Any discrepancy may be due to differences in geographic coverage, product mix, and timing. In the event of discrepancies, Realtors® are advised that for business purposes, local data from their association may be more relevant.
Data tables for MSA home prices (single family and condo) are posted at https://www.nar.realtor/topics/metropolitan-median-area-prices-and-affordability/data. If insufficient data is reported for a MSA in particular quarter, it is listed as N/A. For areas not covered in the tables, please contact the local association of Realtors®.
1Areas are generally metropolitan statistical areas as defined by the U.S. Office of Management and Budget. NAR adheres to the OMB definitions, although in some areas an exact match is not possible from the available data. A list of counties included in MSA definitions is available at: http://www.census.gov/population/estimates/metro-city/List4.txt.
Regional median home prices are from a separate sampling that includes rural areas and portions of some smaller metros that are not included in this report; the regional percentage changes do not necessarily parallel changes in the larger metro areas. The only valid comparisons for median prices are with the same period a year earlier due to seasonality in buying patterns. Quarter-to-quarter comparisons do not compensate for seasonal changes, especially for the timing of family buying patterns.
Median price measurement reflects the types of homes that are selling during the quarter and can be skewed at times by changes in the sales mix. For example, changes in the level of distressed sales, which are heavily discounted, can vary notably in given markets and may affect percentage comparisons. Annual price measures generally smooth out any quarterly swings.
NAR began tracking of metropolitan area median single-family home prices in 1979; the metro area condo price series dates back to 1989.
Because there is a concentration of condos in high-cost metro areas, the national median condo price often is higher than the median single-family price. In a given market area, condos typically cost less than single-family homes. As the reporting sample expands in the future, additional areas will be included in the condo price report.
2The seasonally adjusted annual rate for a particular quarter represents what the total number of actual sales for a year would be if the relative sales pace for that quarter was maintained for four consecutive quarters. Total home sales include single family, townhomes, condominiums and co-operative housing.
Seasonally adjusted rates are used in reporting quarterly data to factor out seasonal variations in resale activity. For example, sales volume normally is higher in the summer and relatively light in winter, primarily because of differences in the weather and household buying patterns.
3 Existing-home sales in June reached a 5.57 million annualized sales pace, which is currently the highest since February 2007 (5.79 million).
4 Total inventory and month's supply data are available back through 1999, while single-family inventory and month's supply are available back to 1982 (prior to 1999, single-family sales accounted for more than 90 percent of transactions and condos were measured only on a quarterly basis).
5Income figures are rounded to the nearest hundred, based on NAR modeling of Census data. Qualifying income requirements are determined using several scenarios on downpayment percentages and assume 25 percent of gross income devoted to mortgage principal and interest at a mortgage interest rate of 4.0%.
NOTE: Existing-Home Sales for October will be released November 22, and the Pending Home Sales Index for October will be released November 30; release times are 10:00 a.m. ET.