Here are some startling stats on the US housing market courtesy of Candace Adams, overseer of Berkshire Hathaway Home Services operations and agents across Connecticut, New York, Massachusetts and Rhode Island.
- Home prices have increased nearly +60% since March 31, 2012, according to the S&P CoreLogic Case Shiller 20 – City Composite Index.
- Household income has increased a bit less than 30% during this same period, according to the Bureau of Economic Analysis.
- The average rate for a 30-year fixed mortgage increased from 3.85% at the beginning of 2018 to today’s rate at 4.74%.
- BankRate.com expects interest rates to continue rising further into next year.
- A buyer with a $2,500/monthly mortgage payment lost nearly $30,000 in home purchasing power thus far in 2018, according to Redfin.
- In Orange County, +30% of homes for sale in the metro area are unaffordable to buyers with $3,500 to spend monthly for mortgage payments.
- In San Jose, +40% of homes for sale are simply unaffordable.
According to Redfin, some metros saw more than one third of median priced homes “disappear” from the market altogether due to lack affordability for would-be buyers. If and when mortgage rates climb from 4% to 5%, an even further loss of affordable homes will disappear in these metros:
- San Jose – 39%
- Orange County – 34%
- Honolulu – 29%
- Seattle – 17%
- Boston – 13%
- New York City – 10%
- Denver – 9%
- Miami – 7%
- Washington DC – 7%
- Dallas – 4%
- Chicago – 4%
Know that a .5 percentage point increase in mortgage rates cuts the price of a house by $25,000 and/or cuts the size of the house itself by 200 square feet. In cities that have gained the most during this current market cycle, this .5 percentage point increase is often the difference between buying and continuing to rent.
Know that higher interest rates affect entry-level buyers the most. Kim O’Connor, an agent with 8zRE in Denver, said, “I have really sharp Millennial clients who are first-time buyers and they definitely have interest rates on their minds the whole time. They’re in a hurry to buy before another rate increase is announced.”
Know too that cities with the biggest home price gains are cities in which demand is tied to stock market performance. Think Amazon and Seattle and Facebook, Google, Apple and Silicon Valley and San Francisco.