By Natalie DeCoste
Consumers in the market for a new home continue to face new record highs for home prices, deterring some buyers and cooling off the market.
According to a National Association of Realtors report, the median sale price for a home was a record $341,600 in April. This is the highest recorded median home price since the association started tracking prices in 1999. This number was up a record 19% from the previous year.
The S&P CoreLogic Case-Shiller 20-metro-area house price index has also been on the rise. The index number has grown since the middle of 2020 and has averaged over 11% growth in 2021.
The S&P value of U.S. house prices is forecasted to outpace GDP growth and consumer inflation. The value is rising at a rapid average pace of 10.6% this year. This is almost double the 5.7% predicted in February, according to a poll of 40 property analysts during May.
“The housing market is in line with fundamentals as interest rates are attractive and incomes are high due to fiscal stimulus, making debt servicing relatively affordable and allowing buyers to qualify for larger mortgages,” said Nathaniel Karp, chief U.S. economist at BBVA.
The increased housing prices have been accompanied by sky-high demand in recent months. According to Lawrence Yun, chief economist for the National Association of Realtors, homes currently get an average of 5.1 offers, and some even see as much as 20 or 30 bids.
2020 experienced the fastest pace of home sales in 14 years, driven by low mortgage rates and the rise of remote work. The U.S. housing sector was one of the few sectors that responded positively to changing lifestyles caused by the pandemic.
However, with the growing price tag of homes, some would-be buyers are beginning to back off.
According to the National Association of Realtors, existing-home sales fell 2.7% from March to April to a seasonally adjusted annual rate of 5.85 million. April marks the third straight monthly decline of existing-home sales, the longest downward stretch since last spring.
According to Yun and other economists, the demand for homes still exists, but the problem is the lack of supply and affordability.
“The rise in prices that we’ve seen and the lack of supply, particularly at lower price points, is dragging down sales. I think that’s going to be the story moving forward,” said Nancy Vanden Houten, lead economist at Oxford Economics.
Even with the decline in sales, analysts cautioned against overstating the slowing pace of home buying, pointing to the fact that home sales still stand at a historically high level.
With the unprecedented nature of the current market, some have expressed fears of another bubble. However, Yun said that this was unlikely as mortgage underwriting standards are stricter than in the run-up to 2008.
Potential homebuyers are also experiencing increased stress as some buyers feel pressured to snap up a home fast or hop into a bidding war to secure a property. Experts, such as Bruce Marks, the founder and CEO of the Neighborhood Assistance Corporation of America, warned potential buyers to not succumb to the pressure and instead broaden their search criteria to increase the number of options they have or wait a few years for supply to go back up.
