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New Data Challenges Popular Housing Market Assumptions

Oct 26, 2016
Home Construction/Credit: Huntstock

A pair of new data studies are challenging some much-repeated assumptions regarding housing affordability and home sale marketing.

First American Financial Corporation’s Home Price Index for August report found real house prices increased 0.8 percent from July but decreased by 2.6 percent when compared to August 2015. The report also stated that real house prices are 41 percent below their housing-boom peak in July 2006 and 20.7 percent below the level of prices in January 2000.

“Contrary to popular opinion, housing isn’t getting more expensive,” said Mark Fleming, chief economist at First American. “In fact, on a purchasing-power adjusted basis, housing is becoming more affordable. Interest rate declines, combined with meaningful gains in incomes, have provided the consumer with greater buying power, which increases housing affordability. The growth in consumer house-buying power is actually outpacing the increases in nominal prices driven by remarkably tight inventories. Until there is a meaningful increase in mortgage rates, likely starting later this year and continuing into 2017, real house price levels will remain low in most major markets.”

Fleming added that housing affordability was increasing in more markets than it is decreasing, most notably in pricey metros including San Francisco, San Jose, New York, Boston and Washington, D.C. “The conventional wisdom that these markets are over-valued does not account for the meaningful growth in consumer house-buying power across the majority of major metropolitan markets,” said Fleming.

Separately, Zillow argued that home prices were on the rise—and coupled with a tight inventory, more sellers are willing to list their homes as "fixer-uppers." Zillow found there are 12 percent more fixer-upper homes on the market now than five years ago, while the number of fixer-uppers priced in the top one-third of their markets were up by nearly 35 percent since 2011.

"Across the country, homes are selling fast and for high prices," says Svenja Gudell, Zillow's chief economist. "Sellers are in the driver's seat, with the freedom to list their home for sale 'as-is' without worrying about price cuts or the home sitting on the market. And without sufficient new construction the housing stock has aged, so home buyers are finding more and more homes on the market in need of a little TLC."

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