From CBS News:
What’s on your TV? In many middle-class homes, programs about house-hunting now compete for viewers with sporting events, cooking shows and financial advice. Americans are house-hungry. And nothing proves this more than the latest figures from Black Knight’s Home Price Appreciation (HPA) index, which in March tallied its highest monthly gain in nearly four years.
“By the end of March, prices were already up 2.3 percent since the start of the year, and we hadn’t even gotten into the prime homebuying season yet,” said Ben Graboske, chief technology officer for this Jacksonville, Florida-based financial services company. The pricing “acceleration” is broad-based, with 36 out of 50 states seeing it since the year started. Spring and early summer are the biggest seasons for home buying.
Everyone agrees that home prices are rising, and that the cost of buying is increasing far faster than new homes can be built. Just two months ago, National Association of Realtors (NAR) Economist Lawrence Yun predicted a 4 percent increase in home sale prices this year. Yun has now upped his expectation to 5 percent.
Is anything wrong with this scenario? Not if you’re a home seller. The economics of scarcity is on your side. “The number of homes on the market fell yet again in April, declining another 8.7 percent from last year,” said Chief Economist Ralph McLaughlin of Trulia, which provides real estate listings and housing data. “Simply put, homebuyers are gobbling up inventory at a much higher rate than in the past. The most recent numbers show that the share of inventory that sells has climbed to 25 percent.”
Not only are homes selling faster, but new home construction hasn’t kept pace with demand. Trulia estimates that for the market to “look normal,” construction of new homes would have to double. In April, new home sales were only about 12 percent of total sales. The historical average is just below a quarter of all sales.
How far will their budgets stretch? According to Yun, income has risen 10 percent in the last five years, but housing prices have climbed 40 percent during that time. “That’s a four-to-one ratio between price and income,” he argued. “At some point, we’ll see a leveling off.”
Not immediately, said Black Knight. Even though interest rates are slowly inching upward, “homes are still affordable from a historic perspective,” said Graboske. It now takes almost 23 percent of Americans’ median income to cover the monthly cost of a median-priced home, which is still below the peak of 35 percent of income required in 2006, and not quite the pre-crisis average of 27 percent from 2000 to 2005.