It is a double edged sword, no doubt. Rising home prices are necessary for the overall housing market to recover and for more borrowers to get back above water on their mortgages. Rising home prices, however, cut into the historic affordability that was bringing more buyers back to the market in the first place.
After rising steadily since 2006 (with a slight blip from the home buyer tax credit in 2010), housing affordability is now dropping on an index from the National Association of Realtors. Asking prices for homes also began rising faster than rents for the first time in November, according to Trulia.
“The era of increasing homeownership affordability in big cities is ending,” researchers from Trulia wrote in a recent report. While the price recovery is choppy market-to-market, strong rental markets like Denver, Seattle and San Francisco are seeing home prices leap ahead of rents.
“The price recovery is strongest in the largest metros, and price gains have now surpassed rent gains in the largest 25 rental markets. However, price gains are starting to waver in smaller markets,” notes Trulia’s Jed Kolko.