But first-time buyers face headwinds from high prices
The spring home-buying season is in full swing and it started off with a bang.
Home prices increased in February to a new high for the fourth consecutive month, according to the S&P CoreLogic Case-Shiller Indices, released Tuesday by S&P Dow Jones and CoreLogic.
And another release Tuesday from the Federal Housing Finance Agency showed home prices rose 6.4% annually and 0.2% from the prior month.
But these rising home prices didn’t hold back new home sales, which increased a full 5.8% monthly and 15.6% annually, according to Tuesday’s release from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development.
“The 2017 spring home shopping season has started off with a bang, and at this point the strength of the market shouldn’t come as much of a surprise,” Zillow Chief Economist Svenja Gudell said. “February Case-Shiller numbers point to more fierce competition in the housing market.”
“The thing to watch for now is when market conditions will shift, and change does seem to loom on the horizon, with rising mortgage interest rates and flattening rents,” Gudell said. “Both could put a dent in home-buyer demand and overall price growth and affordability.”
Another expert confirmed that the market is strong for now, but explains high home prices and low inventory create significant headwinds for first-time homebuyers.
“Strong demand bolstered by income and job growth sets the stage for intense competition and continued price growth in the housing market,” Trulia Senior Economist Cheryl Young said.
“Consumers are likely to also take advantage of mortgage rates as they remain low,” Young said. “While the housing market looks to be recovering, these high prices impact the affordability of homes, directing the strongest headwinds towards starter-home buyers.”
But one expert explained that while new home sales were above expectations in March, home prices are actually beginning to level out.
“New home sales for March were above our expectations,” said Tian Liu, Genworth Mortgage Insurance chief economist. “Strong demand from homebuyers and very tight supply conditions in the overall housing market are fueling demand for new homes.”
“In addition, prices on new homes are stabilizing, suggesting more affordable homes are coming to the market, which will help builders capture more demand from first-time homebuyers,” Liu said.
While the Case-Shiller report shows home prices increased to a new high, the rate of increase slowed.
“The pace of house price gains slowed in February according to Case-Shiller, with the smallest month-on-month rise since July last year,” Capital Economics Property Economist Matthew Pointon said.
After the new home sales report showed March’s increase, one expert explained this increase is likely to continue throughout 2017.
“We expect new home sales to rise further over the course of 2017 in response to solid job gains, faster wage growth, still low, albeit rising, mortgage rates, and faster household formations,” said Nationwide Chief Economist David Berson, who served as chief economist at Fannie Mae for over 20 years.
However, the increase in new home sales may not be much help for first-time homebuyers.
“The good news is that new home sales jumped for the third month in a row, to about the same as last year’s peak in July,” realtor.com Senior Economist Joseph Kirchner said. “Already this spring market is challenging last year’s high-water mark.”
“The bad news is that sales are increasingly concentrated at the mid- to upper-end of the price range,” Kirchner said. “Sales of affordable new homes under $200,000 dropped to 12% from 17% of the market since last April.”