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Home >> Daily Dose >> Is An Affordability Crisis Brewing?
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Is An Affordability Crisis Brewing?

Post-crisis housing market fundamentals have been on the side of what most analysts would consider strong for some time now, and housing prices are near or even past their pre-recession peaks in some markets.

With home prices nationwide having appreciated by 6.2 percent over-the-year in August and showing little signs of slowing, affordability is becoming a bigger problem, according to the CoreLogic Home Price Insights report for August 2016 released Tuesday.

The forecast calls for home prices to appreciate by another 0.4 percent from August to September and by 5.3 percent by August 2017, according to CoreLogic. The HPI Forecast is a projection of what home prices based on the CoreLogic HPI and other economic variables.

“Home prices are now just 6 percent below the nominal peak reached in April 2006,” said Dr. Frank Nothaft, chief economist for CoreLogic. “With prices forecasted to increase by 5 percent over the next year, prices will be back to their peak level in 2017.”

How much of a problem is affordability becoming in the face of continued strong home price appreciation?

“Housing values continue to rise briskly on stronger fundamental and investor-fueled demand, as well as lack of adequate supply,” said Anand Nallathambi, president and CEO of CoreLogic. “This continued price appreciation is contributing to a growing affordability crisis in many markets around the country.”

According to Dr, Richard Green, Director for the USC Lusk Center for Real Estate, “We are getting close to the 2006 peak for national house prices, and the most important positive resulting from this is more and more people have equity in their houses again. While it’s certainly positive that more people own homes worth more than their mortgage balances, the recovery in house prices has been uneven and prices remain well below their peaks in many parts of the United States. In fact, when adjusted for inflation, house prices are still nearly 20 percent lower than they were in 2006. It’s also important to note that, unlike the last time around, higher prices reflect higher rents and reflect an increasing affordability problem.”

Some analysts believe, however, that price appreciation cannot be considered in isolation. According to First American Financial Services, when other factors are considered such as income levels and interest rates, houses in some markets are becoming more affordable. First American’s adjusted Real House Price Index, which takes into account household incomes and mortgage interest rates, declined by nearly 5 percent over-the-year in July despite continued increases in the unadjusted index.

“[R]ising household incomes and low mortgage rates continue to foster meaningful growth in consumer house-buying power across of the majority of major metropolitan markets in July, which were sufficient to more than offset unadjusted price appreciation,” said First American chief economist Mark Fleming.

Click here to view the entire CoreLogic HPI report for August.

Click here to view the S&P CoreLogic Case Shiller Home Price Index for July.

About Author: Brian Honea

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Brian Honea's writing and editing career spans nearly two decades across many forms of media. He served as sports editor for two suburban newspaper chains in the DFW area and has freelanced for such publications as the Yahoo! Contributor Network, Dallas Home Improvement magazine, and the Dallas Morning News. He has written four non-fiction sports books, the latest of which, The Life of Coach Chuck Curtis, was published by the TCU Press in December 2014. A lifelong Texan, Brian received his master's degree from Amberton University in Garland.

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