Homes are even more expensive and harder to afford in most US cities

 Home prices rose by double-digit percentages in most major US cities earlier this year. Of the 185 metropolitan areas tracked, 70% showed double-digit growth in the Median home prices for the first quarter of 2022, compared to the previous year, according to a report by the National Association of Realtors. The number of cities with double-digit increases had been falling from 94% in the second quarter of last year to 78% in the third quarter and up to a revised 66% at the end of last year.

But prices at the beginning of 2022 went up again in many places. The median price for a single-family home in the US was $368,200 in the first quarter, up 15.7% from a year earlier, according to the report.

“Prices across the country have been rising for most of the last two years, including the first quarter of 2022,” said Lawrence Yun, chief economist at NAR. “Given the extremely low inventory, it is unlikely that we will see any price declines, but the upside should subside in the coming months.”

Yun said the slower pace of appreciation will be driven by an increase in the supply of homes for sale and less competition among buyers, as rising mortgage rates will push potential homeowners out of the market.

“I expect a further pullback in home demand as mortgage rates further affect affordability,” he added. “There are no signs that rates are going to go down anytime soon.”

Where did house prices go up the most?

The biggest year-over-year price increases in the first quarter were in small and medium-sized cities, half in Florida.

Punta Gorda, Florida experienced the largest appreciation in the first quarter, rising 34.4%. Ocala, Florida followed; Ogden, Utah; Lakeland and Winter Haven, Florida; Decatur, Alabama; Tampa and St. Petersburg, Florida; Fort Collins, Colorado; Bradenton and Sarasota, Florida; Myrtle Beach, South Carolina; and Salt Lake City, Utah.

“Traditionally, houses in these markets were considered relatively cheap, but with recent migration trends, prices have risen significantly,” Yun said. “Price rises in many smaller tertiary cities are now outpacing those in the more expensive primary and secondary markets. This is due to buyers looking for less expensive housing and also as a result of more opportunities to work from home, which makes it possible to relocate to smaller markets.”

Half of the ten most expensive cities in the country are in California.

San Jose, California, had the highest home prices in the country, with the median home price at $1,875,000, up 25% from a year ago. San Francisco followed; Anaheim, Calif.; Honolulu; San Diego; Boulder, Colorado; The Angels; Seattle; Naples, Florida; and Denver, Colo.

Affordability took a hit

As inventory fell to record lows in the first part of this year and home prices continued their steady rise, buyers scrambled to close deals before mortgage rates rose.

Entering this year, the interest rate on a 30-year fixed-rate mortgage averaged 3.11%, according to Freddie Mac. At the end of March, it was 4.67%. Since then it has risen more than 5% and is expected to rise further this year.

With higher home prices and mortgage rates, affordability worsened considerably in the first quarter.

The monthly mortgage payment for a typical single-family home, with a 20% down payment, increased to $1,383, an increase of $319, or 30%, over the previous year, according to NAR, ( the National Association of Real Estate Brokers). Payments are also absorbing a larger share of household income, with families typically spending 18.7% of their income on mortgage payments, compared to 14.2% a year ago.

“Declining affordability is always the most problematic for first-time buyers, who don’t have a home to draw on, and it also remains a challenge for potential moderate-income buyers,” Yun added.

In the NAR analysis, a mortgage is considered unaffordable if the monthly payment, including principal and interest, is more than 25% of the family’s income. The national median-priced home, at $368,200, was unaffordable for the typical first-time buyer.

The affordability hit means first-time homebuyers spent a larger portion of their income on a home payment than other buyers. The typical starter home had a median price of $313,000 in the first quarter, NAR said. First-time homebuyers typically spend 28.4% of household income on mortgage payments, which is above the affordability threshold.

Income to qualify to buy a median-priced home with a 30-year fixed-rate mortgage and 20% down payment in the United States at the beginning of the year was $66,365. But depending on the median price in various areas, the qualifying price could be lower or significantly higher.

In Youngstown, Ohio, for example, the median homebuyer needed to earn $24,050 a year to qualify for a mortgage. Meanwhile, in San Jose, a buyer had to earn $341,107 a year to qualify for a mortgage to buy a median-priced home.

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