Photo: Robert Clark
The supply of for sale starter homes in the US is severely limited and it’s causing prices in this submarket to rise at a quicker pace than more expensive submarkets.
As a result, homes in nearly half of the largest metros are currently overvalued, making homebuying especially challenging for first-time Millennial buyers. That’s according to the Home Price Index (HPI) released today by CoreLogic.
The current state of the housing market has many real estate experts predicting a “weak” spring homebuying season.
Over the last year, national home prices rose 6.6 percent in January 2018, while prices remained flat from the previous month. CoreLogic included distressed sales in its calculations.
CoreLogic anticipates national home prices will increase by 4.8 percent over the next year, and expects prices will have remained flat from January to February 2018 (the data is not available at the time of publication).
Of the metro areas studied by CoreLogic, home prices rose the most in the Las Vegas, NV metro area which registered an 11 percent year-over-year jump in January. The San Francisco, CA and Denver, CO metro areas also saw large increases in home prices from last year, increasing by 10.2 percent and 8.4 percent, respectively, in January.
Unsurprisingly, the national inventory crisis is driving home prices up, but the starter home submarket is being impacted the most severely as these homes remain in particular short supply nationwide.
Prices for homes that are valued at less than 75 percent of the local median value are rising by 9 percent annually, compared to 5.3 percent annual growth in homes valued at 125 percent of the local median value.
“First-time buyers are facing acute affordability challenges in some high-cost areas,” says CoreLogic Chief Economist Dr. Frank Nothaft in the digital release.
Affordability continued to “erode” in January with a rise in national mortgage rates coupled with rising home prices. Some 48 percent of the housing stock in the largest 50 metro areas are now overvalued. These markets will be particularly challenging for Millennial homebuyers to find affordable housing in, and conditions could get worse before they improve.
“Our projections continue to show tightness in the entry-level market for the foreseeable future, which could further prevent Millennials from buying homes in 2018 and 2019, even as that generation reaches its prime homebuying years,” Nothaft says.
Click here to read the entire release.