US home prices gained 4% year-over-year in December 2019 but the national figure masks the unevenness of price growth in individual markets.
CoreLogic’s Home Price Index for the month, released today (Feb. 4) shows the significant variations between states with Idaho leading with a 9.9% gain year-over-year, while Connecticut saw a modest 0.2% increase.
Month-over-month, the national gain was 0.3% and the firm expects prices to have gained just 0.1% between December and January 2020. However, annual growth of 5.2% in forecast in the year to December 2020.
Disparity also remains in different value segments of the housing market.
“Moderately priced homes are in high demand and short supply, pushing up values and eroding affordability for first-time buyers,” said Dr. Frank Nothaft, chief economist at CoreLogic. “Homes that sold for 25% or more below the local median price experienced a 5.9% price gain in 2019, compared with a 3.7% gain for homes that sold for 25% or more above the median.”
Most of the 100 largest metros are at correct value
CoreLogic’s Market Condition Indicators reveal that among country’s 100 largest metropolitan areas based on housing stock, 34% had an overvalued housing market as of December 2019, 26% were undervalued, and 40% were at value.
Of the top 50 metros, 40% were overvalued, 20% were undervalued and 40% were at value.
“On a national level, home prices are on an upswing,” said Frank Martell, president and CEO of CoreLogic. “Price growth is likely to accelerate in 2020. And while demand for homeownership has continued to increase for millennials, particularly those in their 30s, 74% admit they have had to make significant financial sacrifices to afford a home. This could become an even bigger factor as home prices reach new heights during 2020.”
The MCI analysis defines an overvalued housing market as one in which home prices are at least 10% above the long-term, sustainable level. An undervalued housing market is one in which home prices are at least 10% below the sustainable level.
Housing boom is back... but without the bubble
America’s housing market is booming with home prices nationwide now back to where they were a decade ago, just before the financial crisis.
But that rise in prices does not mean we’re about to repeat the devastating slump because a lot has changed in the 10 years since the market crashed and the world was rocked.
A new report from realtor.com highlights the stronger conditions of the market today.
Although prices and buyer demand stir memories of a decade ago; the low inventory, tighter mortgage underwriting, job and wage growth, and economic fundamentals, make this time very different.
“As we compare today’s market dynamics to those of a decade ago, it’s important to remember rising prices didn’t cause the housing crash,” said Danielle Hale, chief economist for realtor.com®. “It was rising prices stoked by subprime and low documentation mortgages, as well as people looking for short term gains -- versus today’s truer market vitality -- that created the environment for the crash.”
Prices are certainly up with a median sales price in 2016 of $236,000, up 2% from a decade earlier, while realtor.com says listing prices for 2017 have increased in double-digits.
Mortgage lending conditions have improved with even the bottom 10% of borrowers in 2017 having FICO scores of 649 compared to 602 in 2006.
“Lending standards are critical to the health of the market,” added Hale. “Unlike today, the boom’s under-regulated lending environment allowed borrowing beyond repayable amounts and atypical mortgage products, which pushed up home prices without the backing of income and equity.”
The report says that flipping and overbuilding are largely in check, although it acknowledges the impact this is having on constrained construction levels.
The low inventory is exacerbated by the rise in the economy, especially the growing labor market and wages.
“The healthy economy is creating more jobs and households, but not giving these people enough places to live, added Hale.
The tight inventory will continue to hit the affordability of homes which will eventually reach the highest limit that the market can tolerate. At that point Hale says things will start to moderate rather than a crash.
“We expect a gradual tapering as buyers are priced out of the market - not a market correction, but an easing of demand and price growth as renting or adding roommates becomes a more affordable alternative,” she concluded.