An economist’s take on housing prices, affordability, opportunity

Inman News

Windermere Chief Economist Matthew Gardner looks at the latest numbers and the markets that still offer affordable options

Today we are going to look at home prices and housing affordability and to do this I will be looking at the second quarter sales price data from Attom Data Solutions and we will also look at the just-released National Association of Home Builders Housing Opportunity Index for the second quarter.

Starting with the year-over-year change in sale prices at the State level, there aren’t any great surprises. For the past several months I’ve been saying that as the Western U.S. saw the greatest price growth during the pandemic it’s not surprising to see most states’ sale prices end the quarter below the level seen a year ago.

But it was pleasing to see that sale prices in 36 states either matched the level seen a year ago or were higher, and in some instances quite significantly so.

And when we compare second-quarter sale prices to their 2022 peaks, 33 states are at or above the highs seen last year, but most of the Western States have yet to fully recover. In the South, Louisiana is still lagging by a good amount — as is New York State on the East Coast.

But as you are all very aware, all markets are different and I thought it would be interesting to dig a little deeper into the data to see which metro markets have seen significant gains over the past 12 months.  It’s going to be interesting specifically because of the fact that mortgage rates have risen so much.

These are markets where sale prices are far above their 2022 peak sale prices. Now I must add that I only looked at markets where more than 1,000 transactions occurred in the last quarter, which takes out some of the volatility

Notably, even though the State of Virginia’s home prices in the quarter were flat when compared to their 2022 peak, the Roanoke market was up by over 9 percent. And in Pennsylvania — where State prices were only 1.2 percent above their 2022 peak, Reading is up by 7.6 percent and York by 7.4 percent.

In Georgia, where state sale prices were up a modest 1.6 percent, homes in Macon have leapt by over 13 percent and prices are up by 6.9 percent in Savannah.

But, on the other end of the spectrum, there are markets which are underperforming their respective States and, unsurprisingly, California tops the list with three of their metros seeing prices significantly below that of the state as a whole.

In other parts of the country, several metro areas which were relatively affordable before the pandemic saw an influx of remote workers and this led prices to skyrocket, and these will take some time to recover. This is particularly true in the Austin and Boise market areas.

I would add that, of the counties across the country where there were more than 1,000 transactions in the second quarter, half have met or exceeded their prior peak and — of the half where sale prices were still lower — the average shortfall is only around 4 percent and there are just seven counties in the country where sale prices are down by more than 10 percent from their 2022 peaks.

Now, what I see in the data is that the U.S. housing market, although certainly not fully healed, is headed in the right direction even when faced with mortgage rates that remain remarkably high.

So, with sale prices recovering and still faced with stubbornly high financing costs, what does affordability look like?

Well, according to the National Association of Homebuilders, of the 241 metros that they track, just 40.5 percent of sales in the second quarter were affordable to households making the area’s median income — that’s the second lowest share of sales seen since they started generating this dataset a decade ago.

Now, their data does go back to 2004 but the interest rate series that they used to use was discontinued, so it’s not accurate to compare their data today with anything before 2012.

These were the most affordable markets in the second quarter and their locations should not be of any great surprise.

Average sale prices in these markets were measured around $203,000 — that’s just marginally above 50 percent of the national sale price in the quarter, which was $402,600.

And unfortunately, this should not surprise you either. On the other end of the spectrum, the top 10 least affordable housing markets were all in California, but it gets worse than that. The top 15 least affordable markets were, again, all in California, and 19 out of the top 25 were in the Golden State.

As far as I can see, the ownership housing market is still showing remarkable resiliency – especially given that mortgage rates have more than doubled from their lows — and they’ve risen from 4.8% at the start of the second quarter of last year to 7 percent at the end of the second quarter of 2023.

Now, I still expect to see rates starting to slowly move lower as we go through the second half of the year — and this will help with prices and, to a degree, affordability — but until we see a significant increase in the number of homes listed for sale, the market is going to remain unbalanced.

Matthew Gardner is the Chief Economist for Windermere Real Estate, the second largest regional real estate company in the nation. Matthew specializes in residential market analysis, commercial/industrial market analysis, financial analysis, and land use and regional economics. He is the former Principal of Gardner Economics, and has over 30 years of professional experience both in the U.S. and U.K.