You might expect the National Association of Home Builders (NAHB) to be happy to hear about inventory shortages since that means there is a need for more new construction. But the NAHB’s chief economist has a warning to accompany the association’s latest report on home prices, mortgage interest rates, and median household incomes across the country. “Buyers should be prepared,” said Robert Dietz. “It’s going to be more expensive to afford a house over the course of 2018.”
Dietz cited rising mortgage interest rates and rising home prices for present and looming difficulties associated with buying a home. Given that mortgage rates have been heading upward for more than five weeks now, some home buyers are likely to try to act quickly in order to beat the banks. Lawrence Yun, chief economist for the National Association of Realtors (NAR), predicted recently that mortgage rates will reach 4.5 percent midway through this year, which will prompt “inventory shortages in both new- and existing-home sectors.”
The NAHB predicted that housing affordability will be “most depressed” in California. Meaning that it will likely be less likely that an individual earning the median income will be able to afford a home in that state than anywhere else in the country. For example, in San Francisco, which is the least affordable market in the country at this time, median list price for a home is $1.2 million. According to the Census Bureau, median income in San Francisco is just about $100,000. Assuming a 4.5 percent interest rate and a 10 percent down payment, that salary will allow the earner to borrow about $345,000 in mortgage money, not nearly enough for a median-priced house in that market.
The NAHB was not all doom and gloom, however. The report also named the most affordable markets in the country. In Syracuse, New York, and Youngstown, Ohio, more than 88 percent of the homes sold in the area were affordable to households earning those areas’ median incomes. Scranton, Pennsylvania, and Columbia, South Carolina, also made the list.
Investor Insight:
Be prepared for increased competition on every level of the housing spectrum. This could result in leveling-off of home prices, or it could drive them higher. Either way, buyers earning median wage in most metro areas may struggle to buy homes in 2018, making long-term renting a more dominant housing decision.
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