HOME PRICES SHARPLY SLOW THEIR RATE OF INCREASE

In October, the median selling price of a U.S. single-family home was $398,500, up 8.6 percent from a year earlier. That rate of increase is almost half that of this year’s second quarter, when prices were rising at a 14.2-percent annual rate.

In the third quarter, median prices were higher by at least 10 percent in about 80 of the 185 metro areas monitored by the National Association of Realtors (NAR). 

In the second quarter, prices were up 10 percent or more in almost 150 of those locales.

Prices are still rising because of the lingering shortage of houses for sale, due in part to current owners being reluctant to give up their current cheap mortgages, the NAR said.

Mortgage rates have risen from an average of 3.11 percent in January to an average of 6.95 percent as of 3 November, according to the Federal Home Loan Mortgage Corp. 

Rising rates make it increasingly difficult for modest- and middle-income households to qualify for a mortgage.

In this year’s third quarter, the typical monthly house payment was $1,840, about a 50-percent increase from the $1,226 that prevailed a year previous.

“Much lower buying capacity has slowed home price growth and the trend will continue until mortgage rates stop rising,” NAR chief economist Lawrence Yun said in a statement announcing the October figures.

“We’re going to see [sales] volumes pull back significantly,” Skylar Olsen, Zillow’s chief economist, told The Wall Street Journal, although “we might not see prices fall dramatically at a national level.”

Although prices were higher in 181 of the 185 areas, sale prices declined in four.

Prices fell most in Cumberland, MD, down 4.5 percent, followed by Bismarck, ND, where prices slumped 4.1 percent. Homes in San Francisco sold for 3.7 percent less in October.

TREND FORECAST: Softer home prices may help modest- and middle-income households buy homes in secondary markets.

However, higher mortgage interest rates, low inventory and high demand will work together to keep prices higher for better homes in better areas.

As a result, most people hoping to buy a home will have to wait until the housing market sees a much more significant downturn or until the Fed begins sharply cutting rates.

Neither is likely until at least next spring.

Therefore, the next generation of home buyers will have to wait even longer for their chance to fulfill the American dream of home ownership as premium rents eat up the cash they could be saving for a down payment – a dilemma we detailed in “Can’t Afford to Buy a Home? Go Broke Renting One” (5 Feb 2021).