NAR: Housing Prices Rise; Affordability Lags

WASHINGTON, DC-Median single-family home prices, including for-sale apartments, rose year-over-year for the fourth quarter of 2013 in 119 of the 164 metro areas charted by the National Association of Realtors. However, NAR notes that its latest quarterly report, released Tuesday, should be balanced against a companion report showing Y-O-Y affordability.

"The vast majority of homeowners have seen significant gains in equity over the past two years, which is helping the economy through increased consumer spending," says Lawrence Yun, NAR's chief economist. "At the same time, home prices have been rising faster than incomes, while mortgage interest rates are above the record lows of a year ago. This is beginning to hamper housing affordability."

All five of the most expensive housing markets in Q4 were Western cities; The San Jose, CA metro area led the way with a median existing single-family price of $775,000; it was followed by San Francisco, $682,400; Honolulu, $670,800; Anaheim-Santa Ana, CA, $666,300; and San Diego, with a median price of $476,800. The five lowest-cost housing markets were smaller metro areas further east: Toledo, OH, with a median single-family price of $80,500; Rockford, IL, $81,400; Cumberland, MD at $89,500; Elmira, NY, $99,500; and South Bend, IN, with a median price of $101,100.

On a Y-O-Y basis, housing price growth showed some softening. Seventy-three percent of metro areas showed yearly gains, compared with 88% in 2012, while 26% experienced double-digit increases, compared with 33% the year prior.

On the other hand, the number of distressed homes also fell in the past 12 months. Foreclosures and short sales accounted for 14% of Q4 sales, down from 24% a year earlier. And while existing-home sales declined 7.8% from Q3 levels, they were up 0.8% Y-O-Y to 4.94 million. Prices of condominiums rose slightly faster Y-O-Y than those of single-family houses: up 10.7%, compared to 10.1%.

Yun says tight supplies in many metro areas accounted for double-digit price growth. At the end of Q4, 1.86 million existing homes were available for sale, slightly above the 1.83 million homes on the market a year earlier. The average supply during the quarter was 4.9 months; it was 4.8 months in Q$ '12. A supply of 6.0 to 6.5 months represents a rough balance between buyers and sellers.

"New home construction activity needs to increase significantly in the fast appreciating markets to help relieve upward price pressure," says Yun. Last year, housing starts totaled 924,000, compared to the historic average of 1.5 million units that typically are needed. "Added housing supply will help moderate price growth this year, and should help to stem erosion in affordability, but mortgage interest rates are projected to rise above 5% by the end of the year."

Following a speech at the Alabama Real Estate Conference, Yun told HousingWire that the US economy still feels as though it's in a recession. "Looking at the economy, last year was overall a sub-par performance with 2% GDP," he told HousingWire. "That is below the historical norm of 3% and it's been several years of under 3% growth." He looked at the employment rate as a factor: "We are only at 58% of the adult population working now, same as it was in the depth of the recession, and well below the historical trend of 63%."