A major element of the inflation gripping the economy is home prices, which just keep rising.
The median price for single-family existing homes soared 15.7% in the first quarter from a year ago to $368,200, according to the National Realtors Association. That topped the 14.3% gain for the fourth quarter.
Fully 70% of the 185 metropolitan markets tracked by NAR showed double-digit annual price gains in the first quarter.
“Prices throughout the country have surged for the better part of two years, including in the first quarter of 2022,” Lawrence Yun, NAR’s chief economist, said in a statement.
“Given the extremely low inventory, we’re unlikely to see price declines, but appreciation should slow in the coming months.” And he does see home supply increasing.
Rising mortgage rates will make their presence felt, Yun said. “I expect more pullback in housing demand as mortgage rates take a heavier toll on affordability,” he said. “There are no indications that rates will ease anytime soon.”
Rates and Affordability
The fixed 30-year mortgage rate averaged 5.1% in the week ended April 28, down a tick from the prior week’s 12-year high of 5.11%, according to Freddie Mac. The rate was 2.98% a year ago.
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The sustained price appreciation and higher mortgage rates dented housing affordability during the first quarter, according to NAR. The monthly mortgage payment on a typical existing single-family home with a 20% down payment rose 30%, or $319, to $1,383 from a year ago.
Families typically spent 18.7% of their income on mortgage payments, up from 14.2% a year earlier.
“Declining affordability is always the most problematic to first-time buyers, who have no home to leverage, and it remains challenging for moderate-income potential buyers, as well,” Yun said.
Of course, for people who already own a home, the past two years have been generous. During that period, homeowners have seen their wealth rise $6 trillion excluding rental properties, according to The New York Times, citing a Federal Reserve study.
Meanwhile, the Fed is poised to raise interest rates Wednesday. And if home prices keep climbing and housing demand remains strong, the central bank may have to raise interest rates a whole lot further, according to Bloomberg.
“[Fed officials] are not going to get the decline in economic activity through housing that they typically get, at least not as quickly as they typically get it,” Mark Zandi, chief economist for Moody’s Analytics, told Bloomberg.
“They may have to press on the brakes even harder.”
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