The National Association of Realtors®
(NAR) said on Thursday that home prices have continued to grow in each of the
181 areas it tracks for its quarterly metro home price report. Both record-low
mortgage rates and depleted inventories of existing homes for sale contributed
to the annual growth.
“Favorable mortgage rates will
continue to bring fresh buyers to the market,” said Lawrence Yun, NAR chief
economist. “However, the affordability situation will not improve even with low
interest rates because housing prices are increasing much too fast.“
Percentage price gains reached into
the double digits in 65 percent or 117 of the areas. In comparison, only 15
metro areas recorded double-digit increases in 2020’s second quarter. The
biggest gainers in the third quarter were Bridgeport, Connecticut, (27.3
percent); Crestview, Florida. (27.1 percent); Pittsfield, Mass. (26.9 percent);
Kingston, New York. (21.5 percent); Atlantic City, New Jersey (21.5 percent).
The nation’s median existing
single-family home price climbed 12.0 percent on a year-over-year basis, to
$313,500. All four major regions saw double-digit year-over-year price gains,
led by the West at 13.7 percent, but followed closely by the Northeast at 13.3
percent and the South and Midwest at 11.4 and 11.1 percent, respectively. At
this rate, home prices were growing four times as fast as median family income,
which was 2.9 percent.
“In light of the pandemic, prices
jumped in a number of metros that contain larger properties and open space -
where families could find extra rooms, including areas for an at-home office,”
The West also continues to lead the
nation with eight of the ten most expensive metro areas. The remaining two are in
the East. San Jose and San Francisco both have median prices of over $1 million
and are followed by Anaheim, Urban Honolulu, San Diego and Los Angeles, all
with medians over $800,000. The remaining four, Boulder, Seattle, Bridgeport,
and Boston, have medians ranging from $680,000 down to $580,000.
Inventories have continued to shrink
with only 1.47 million existing homes available at the end of the third quarter.
This is a year-over-year decline of 19.2 percent and an estimated supply of 2.7
months at the current sales pace.
Rising prices had been offset in
recent months by declining interest rates, but Yun notes, price increases are
now taking a toll on affordability. The monthly mortgage payment on a typical existing
single-family home – one that is financed with a 30-year fixed-rate mortgage
and 20 percent down payment – rose to $1,059 in the third quarter. This is an
increase from the second quarter ($1,019) and from 2019’s third quarter numbers
At the median U.S. family income of
$81,477, mortgage payments accounted for 15.6 percent of income in the third
quarter, up from 14.8 percent the prior quarter but unchanged from the share one
year ago. The effective 30-year fixed mortgage rate averaged 3.01 percent in
the third quarter of 2020, down from both the second quarter of 2020 (3.29
percent) and from one year ago (3.71 percent).
With home prices continuing to rise,
NAR said that families needed roughly $50,819 in annual income to comfortably
afford a mortgage on a typical existing single-family home, up from $48,912 in
the second quarter and from $49,536 this time last year. A 30-year fixed-rate,
20 percent down payment mortgage is considered affordable if the mortgage
payment accounts for no more than 25 percent of a family’s income. A home
purchase was affordable because the median family income was $81,477.
“As home prices increase both too
quickly and too significantly, first-time buyers will increasingly face
difficulty in coming up with a down payment,” said Yun. “Transforming raw land
into developable lots and new supply are clearly needed to help tame the home
In 125 of the 181 metro areas, a
family needed less than $50,000 to afford a home. However, in eight metro
areas, a family needed more than $100,000. These are essentially the same areas
with the most expensive homes listed above.