Summer 2016 Guide to House Prices
House prices are determined by housing supply, housing demand and housing affordability.
Housing Supply: What's the Outlook?
Housing supply measures how many months it would take to sell all the houses currently listed for sale, at the current pace of home sales. For example, if there are 600 homes currently listed for sale, and an average of 100 homes are selling each month, there would be a 6-month housing supply. This is because it would take 6-months to sell all the homes currently listed for sale.
A buyer’s market is anything more than 6 months. A seller’s market is anything less than 6 months. In this case, sellers would have greater negotiating power, and buyers may have to bid higher than list price in order to compete with multiple offers.
Housing supply has been running below 6 months across the US since 2012. This indicates a seller’s market. In many parts of the country, buyers are competing with multiple offers… in some cases dozens of offers on the same house. This tells us that house prices are poised to continue going up in the next several months.
Housing Demand: What's the Trend?
Housing demand tends to pick up in the summer because most home sales occur during the spring and summer. Housing demand is expected to be strong this spring because the economy is doing well and people have jobs in most parts of the country. The chart to the right illustrates how there are more jobs available today than at any point in the past 15 years as measured by the Job Openings and Labor Turnover Survey (JOLTS) report.
Housing Affordability: Can Buyers Afford Houses at Current Prices?
The National Association of Realtors (NAR) publishes a "Housing Affordability Index".
This is a chart illustrating NAR’s Housing Affordability Index for First-time Homebuyers. A value of 100 means that a first-time homebuyer family with the median income has exactly enough income to qualify for a mortgage on a starter-priced home, with a 10 percent down payment. An index above 100 signifies that a family earning the median income has more than enough income to qualify for a mortgage loan on a starter-priced home, assuming a 10 percent down payment.
Today's index value of 113.0 means that a family earning the median family income has 113% of the income necessary to qualify for a conventional loan covering 90 percent of a starter-priced existing single-family home. This means that houses are still affordable for first-time buyers as they generally are making more than enough income to qualify for financing. In fact, homes are more affordable today for first-time homebuyers than they have been at any point in the past three years.
For move-up homebuyers, the affordability index is currently in the 169 range. This also means that homes are more affordable today for move-up homebuyers than they have been at any point in the past three years.
Keep in mind that housing affordability in your situation could be higher or lower depending on the amount of your down payment and the mortgage strategy you choose.
Conclusion: we anticipate an increase in house prices over the next several months because housing supply is likely to remain low, housing demand is likely to increase, and houses will continue to remain affordable for most buyers. Please contact me for specific information on housing supply, housing demand and housing affordability in your local market.
3000 Old Alabama Road, Suite 119-477,
Alpharetta, Georgia 30022