Persistent Housing Price Gains Hurting Affordability

Despite continued rapid home appreciation across the U.S., nearly a quarter of metro markets have not fully recovered from their price peaks before the housing market crash a decade ago, including a few that are still off by more than 20 percent.

According to Nationwide’s latest Health of Housing Markets Report, homeowners in these metro markets are more likely to be underwater in their mortgages. The report noted the national share of mortgages that have negative equity is near 5 percent, and that number doubles for homeowners who live in markets with prices still below their prior peaks.

Las Vegas led the 10 major markets that remain below their prior price peaks, followed by Bakersfield and Fresno in California; Tucson, Arizona; Orlando-Kissimmee in Florida; Camden, New Jersey; Fort Lauderdale, Florida; Riverside-San Bernardino, California; Phoenix-Mesa, Arizona; and Naples, Florida.

The report also noted that sustained rapid home appreciation is weakening the near-term outlook for the U.S. housing market.

"The biggest concern with regard to the housing market in 2017, especially as the year ends, is that persistent price gains are reducing affordability," David Berson, SVP and Chief Economist at Nationwide, said.

The report noted that house price gains continued to run at a pace well above the long-term average as historically few homes on the market created heightened competition among homebuyers. However, job gains, rising incomes, and a healthy mortgage market still supported a positive–although slightly less optimistic than last quarter–outlook for the U.S. housing market.

According to the report, the outlook for the vast majority of regional housing markets across the U.S. remains upbeat, with more than 80 percent of metro areas earning a positive ranking. Moreover, markets with strong ties to the oil and gas industries are among the most improved in 2017 due to solid job growth and rising housing demand.

"The housing market is still moving forward thanks to solid job gains, but it's showing signs of strain. We're watching to see if household formations, income, job, and mortgage trends can sustain the market's health," Berson said.

To read the complete report click here.