Home prices rose almost everywhere in the US this summer

How High Priced Homes Changed The Mortgage Game In 2021

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The real estate market since the start of the COVID-19 pandemic has been tough on all buyers, but aspiring first-time buyers may have struggled most of all.

For much of 2020 and 2021, the housing market faced a challenging combination of high demand and low supply. Young people were already growing into the largest segment of buyers as the Millennial generation came of age. When the COVID-19 pandemic hit, preferences for more living space, increased remote work opportunities, and other factors related to the pandemic encouraged even more people to enter the market. But existing owners proved reluctant to part with their homes, with supply on the market reaching a record low late in 2020. As a result, competition in the market drove the median home price up by 36% over the last two years. The run-up in home values was good news for people who already had equity in their homes, but it pushed prices out of reach for first-time buyers.

More recently, persistent inflation—and policymakers’ responses to it—have also made it harder to save up for a home. The prices of household essentials like groceries, energy, and especially rent have grown quickly over the last 18 months, leaving first-time buyers with less money to set aside. And now, as the U.S. Federal Reserve raises interest rates in efforts to combat inflation, the costs to take out a mortgage loan have risen dramatically. The average 30-year mortgage interest rate in the U.S. is more than double what it was at the start of 2022, translating into hundreds more dollars per month in payments for would-be buyers.

In case you needed more evidence of how much home prices have skyrocketed: Even as the housing market was cooling over the summer, prices still rose in 98% of US markets, according to a new report.

From July through September, home prices increased in 181 out of 185 cities tracked by the National Association of Realtors. But the gains had slowed substantially as mortgage rates rose during that time. About half of cities (46%) saw double-digit increases from the year before, down from 80% of cities in the prior quarter.

“Much lower buying capacity has slowed home price growth and the trend will continue until mortgage rates stop rising,” said Lawrence Yun, NAR’s chief economist.

Yun said that because of strong price growth and rising mortgage rates, the median income needed to buy a typical home rose to $88,300 in the third quarter. That’s almost $40,000 more than it was prior to the start of the pandemic.

The average mortgage rate for a 30-year fixed-rate loan during the third quarter — from July to September — was lower than it is now, ranging between 4.99% and 6.70%, according to Freddie Mac. Rates are currently hovering above 7% and expected to go up further as the Federal Reserve continues to take action to rein in inflation.

Where prices rose the most

Prices grew in all parts of the country during the third quarter, but were up the most in the South, rising 11.9% in the third quarter from the year before, according to the report. Prices were up 8.2% in the Northeast, 7.4% in the West, and 6.6% in the Midwest.

Seven of the 10 cities with the biggest year-over-year price jumps were in Florida.

Sarasota, Florida, saw the biggest price jump in the third quarter, up 23.8% from a year earlier. It was followed by the Lakeland and Winter Haven area of Florida, up 21.2% from last year; Myrtle Beach, South Carolina, up by 21.1%; Panama City, Florida, up by 20.5%; and Daytona Beach, Florida, up by 19.6%.

The most expensive markets to buy a home were largely in the West, with half of the top 10 priciest cities in California.

San Jose, California, was the most expensive place to buy a home in the third quarter with the median price hitting $1,688,000, which was up 2.3% from a year before. It was followed by San Francisco, with a median price of $1,300,000; Anaheim, California, at $1,200,000; Honolulu, at $1,127,400; and San Diego, at $900,000.

“The more expensive markets on the West Coast will likely experience some price declines following this rapid price appreciation, which is the result of many years of limited home building,” Yun said. “The Midwest, with relatively affordable home prices, will likely continue to see price gains.”

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