Home Buyers Priced Out of the Market Should See Relief Within a Year

As home prices hit levels not seen since 2005 in May, ownership is becoming increasingly unattainable for first-time buyers.

Eighty-two percent of consumers say housing affordability is a key problem, according to a recent CoreLogic survey. Another large group of respondents, 33%, said they would wait to buy or not buy at all rather than make sacrifices on their purchase.

“First-time buyers are hitting a wall in many places around the country as the pace of home price rises outpace the benefits of lower borrowing costs. Younger and first-time buyers, including younger millennials, are faced with the challenge of having sufficient savings for a down payment, closing costs and cash reserves,” said Frank Martell, president and CEO of CoreLogic, in a prepared statement. “As we look to the balance of 2021, we expect price rises to continue, which could very well push prospective buyers out of the market in many areas and slow home price growth over the next year.”

Overall, prices rose 15.4% year-over-year in May. On a month-over-month basis, home prices increased by 2.3% compared to April 2021. Buyers continue to look for more space as appreciation of detached properties (17.2%) was nearly double that of attached properties (9.1%) in May.

The west led the way in home price appreciation in May. Idaho and Arizona posted the strongest price growth at 30.3% and 23.4%, respectively. Utah followed with a 20.4% year-over-year increase. Twin Falls, Idaho, had the highest year-over-year increase at 35% among localities, while Coeur d’Alene, Idaho, came in second at 32%.

The pace of increases won’t be able to continue forever, however. CoreLogic predicts that affordability challenges will deter potential buyers and cause a slowdown in home price growth. It projects that home prices are projected to increase 3.4% by May 2022.

While prices are rising at 2005 levels, Dr. Frank Nothaft, chief economist at CoreLogic, says that this situation is different. “Today, loans with high-risk features are absent and mortgage underwriting is prudent,” he said in a prepared statement. “However, demand and supply imbalances — fueled by a drop in mortgage rates to less than one-half what they were in 2005 and a scarcity of for-sale homes — has fed the latest run-up in sales prices.”

Other sources are reporting historically high increases in home prices. In March, The S&P National Composite Index, covering all nine US Census Divisions, marked its tenth consecutive month of accelerating prices with a 13.2% gain from year-ago levels, up from 12.0% in February, according to the S&P CoreLogic Case-Shiller US National Home Price NSA Index

 This increase was last exceeded 15 years ago in December 2005, “and lies very comfortably in the top decile of historical performance,” Craig J. Lazzara, managing director and global head of Index Investment Strategy at S&P DJI, says in prepared remarks.