Home prices have been rising steadily since the recession, but the gains are suddenly accelerating as spring demand heats up in an already highly lean and competitive market. Prices surged 7 percent higher in March compared with a year ago, according to CoreLogic. That’s the biggest gain since May 2014.
High Prices and Low Inventory
Housing players are singing the same old tune of high prices and low inventory marching through the spring selling season, but none expected the rise to high notes that home prices are hitting, ending in a crescendo of overvalued markets and bidding wars on stage.
CoreLogic chief economist, Frank Nothaft, explains, “High demand and limited supply have pushed home prices above where they were in early 2006. New construction still lags behind historically normal levels, keeping upward pressure on prices.” Results of this offbeat melody are slowing down the rhythm of the market altogether, driving affordability down, especially in the low-end markets where skimpy levels plague supply.
Some experts like Frank Martell, CoreLogic CEO and president, suggest that most of the crowd is falling behind the beat as, “Affordability continues to slip away from the average buyer. Lower-priced homes are appreciating much faster than higher-priced properties, making the affordability crisis even worse.”
On this note, CNBC reports, “Prices are seeing the biggest gains at the lower end of the market, where supply is leanest,” and similarly, according to the National Association of Realtors, “Sales of homes priced under $100,000 fell more than 20 percent in March, not because there wasn’t demand, but because there wasn’t enough supply.” All the while, this disheveled dance is causing buyers to have to fight for their chance in the housing spotlight.
Bidding Wars for the Common Buyer
With these heated conditions, common buyers are entering bidding wars more than ever before which ignites rates, further thwarting market tempo. A recent report from CNBC explains, “Higher mortgage rates usually mean cool home prices, as buyers can’t afford as much, and sellers have to accommodate. The difference in today’s market is that there is so much pent-up demand from the largest generation, and the economy and employment are improving.”
In fact, there’s a clear connection between economic growth and surging home prices as Nothaft points out, “All of the cities and states where prices are rising the most are seeing strong job growth.” Nationally, the housing anthem is loud and clear, but certain areas are almost being drowned out by the blare of affordability pressures including the alluring states of California, Washington, and Colorado, to name a few.
California is being particularly affected as other areas with comparable luxuries are luring people in, enticed by lower costs of living. CNBC cites, “There is new data showing people are now leaving California due to sky-high home prices,” while Realtor.com agrees reporting, “16 of California’s most popular counties are losing residents.”
In turn, other less predictable areas such as, “Utah and Idaho are seeing double-digit gains, as workers move to areas where there is more supply,” according to CNBC’s report. As the springtime song plays on, buyers are hoping for the end of a tune stuck on repeat.