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    Home»News»Home Prices in Four of Biggest US Metros Unsustainable
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    Home Prices in Four of Biggest US Metros Unsustainable

    Chris HamlerBy Chris HamlerAugust 19, 2017No Comments3 Mins Read
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    Almost half of the average home prices in America have ballooned since its lowest point post-crisis in March, 2011. This is according to the most recent Home Price Index report and HPI Forecast conducted by analytics and solutions provider CoreLogicfor the month of June.

    The report

    On a year-over-year basis, home prices have seen an increase of 6.7 percent nationally compared to a year ago. The month-over-month record also increased by 1.1 percent.

    CoreLogic crunches data by comparing current home prices to their sustainable levels which are supported by local economic fundamentals such as disposable income. Since most homeowners pay for their mortgage with their income, the researchers determined that there is a relationship between the homeowners’ income levels and home prices.

    A market is categorized as overvalued if the home price is at least 10 percent higher than the identified sustainable level while an undervalued market has home prices that are at least 10 percent below that level.

     

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    Out of the nation’s 10 largest metros, four were identified as overvalued, namely: Denver, Houston, Miami and the Washington, D.C. Meanwhile, it was found out that previously known hot markets such as San Francisco and New York City are actually cooling down. San Francisco is now considered at value, the same as New York City where homes are priced just 3 percent up annually and is within sustainable levels.

    With overheated markets, it wouldn’t be a surprise if potential homebuyers reconsider their decision to get a home, especially for these areas. Despite historically-low mortgage interest rates, unbelievably expensive properties can seriously offset a homebuyer’s decision to pursue a purchase.

    The other factor

    Although affordability can maim homebuyer motivation, another factor that is to blame for the slowing down of sales growth in home purchases is the lack of available inventory. The inventorycrisis has been going on since the latter part of last year and halfway into 2017, there still seems to be no end in sight. Experts hold the cost of production (e.g. cost of labor, materials, etc.) accountable for the current situation.

    The number of unsold inventory as a share of all households for the second quarter of the year is 1.9 percent, the lowest in Q2 reading in the history of the last three decades.

    While demand remains high and continue to erode available inventory, competition grows, forcing some markets to raise prices to maintain market balance. As this happens, many homebuyers are priced out, making homeownership more difficult for those who have very definite budgets for their purchase.

    The forecast

    For the coming year, CoreLogic projects that the year-over-year increase in June 2018 would be at 5.2 percent. The month-over-month increase is expected to be at 0.6 percent for July 2017.

    “While low mortgage rates are keeping the market affordable from a monthly payment perspective,” says CoreLogic CEO Frank Martell, “affordability will likely become a much bigger challenge in the years ahead until the industry resolves the housing supply challenge.”

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    Chris Hamler
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