Oct. 2015 - Diversified We Stand, Divided We Fall

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ANALYTICS 54 | TH E M R EP O RT THE LATEST Affordability Remains Unshaken by Home Price Increases Interest rates would have to rise to 6 percent to bring affordability up to historically normal levels. D espite home price increases over the last three years, homes are still affordable by histori - cal standards, according to the Ur- ban Institute's Monthly Chartbook: Housing Finance At A Glance. The August 2015 edition of At A Glance, the Urban Institute Housing Finance Policy Center's reference guide for mortgage and housing market data, noted that even if interest rates rose to 6 percent, affordability would be at the long-term historical average. The current median sales price rests at $219,000 as of May 2015, while the maximum affordable price is $297,364. Meanwhile, the maximum affordable price at a 6 percent interest rate is $247,421, the report stated. Affordability among the San Francisco, California; San Jose, California; and Los Angeles, California metros all fall under the 0.8 debt-to-income (DTI) ratio, where one indicates an affordable market with a smaller DTI ratio, according to the Urban Institute. In addition, Washington, D.C., and Miami, Florida metros are also ranked low on the affordability scale with DTI ratios under 0.9. On the other hand, the Cleveland, Ohio metro's DTI ratio is over 1.3, making this market highly affordable. Cincinnati, Ohio; Pittsburgh, Pennsylvania; Las Vegas, Nevada; and Columbus, Ohio metros wrap up the top five most affordable metros with DTI ratios all well above one. The strong year-over-year growth in house prices through 2013 has slightly slowed down since 2014, according to the report and other HPI data. National home prices have risen 36.7 percent from their trough but still must grow 8 percent to reach pre-crisis peak levels. At the MSA level, three of the top 15 MSAs have reached their peak HPIs—Houston, Texas; Dallas, Texas; and Denver, Colorado. Two MSAs particularly hard hit by the boom and bust—Phoenix, Arizona and Riverside, California—would need to rise 36 and 38 percent, re - spectively, to return to peak levels. Earlier in August, CoreLogic's June 2015 Home Price Index found home prices were edging up once again thanks to pent-up buyer demand, affordability, consumer confidence, and an improving labor market. According to the report, home prices, including distressed sales, increased by 6.5 percent year-over-year in June. "The current cycle of home price appreciation is closing in on its fourth year with no appar - ent end in sight," said Anand Nallathanbi, president and CEO of CoreLogic. "Pent up buying demand and affordability together with higher consumer confidence buoyed by a more robust labor market, are a potent mix fueling a 6.5 percent jump in home prices through June with more increases likely to come." Housing Demand Lowers Amid Buyer Disinterest, Price Limitations Redfin predicts cooling demand entering the fall months. A s buyers reach their price limits and show less interest in homes, housing demand lowered for the fourth consecu- tive month. According to Redfin's Housing Demand Index, homebuy- er activity fell 5 percentage points from 113 in June to 108 in July. "Redfin real estate agents report that the market is rapidly cooling, with buyers reaching their limit on prices and showing less interest in hot home listings," the report said. In a hot market like Denver, where half of new listings sell in six days or fewer, Redfin agents and their customers are witness - ing the slowdown first-hand. "It feels like the market is at a standstill," said Michelle Ackerman, a Redfin agent. "Showings have dropped off significantly." In July 2013, homebuyer activity reached 119, and 99 in July 2014, Redfin reported. Still, homebuyer demand was up 9 percent year- over-year in July, leading Redfin's Forecast Model to project that in August, home prices across 15 major metro areas will rise 2.2 percent and sales will increase 2.6 percent year-over-year. Redfin forecasted July home prices and sales on July 23 us - ing demand data through mid- July and housing metrics from 15 major metro areas. In July, the median sales price increased 4.6 percent from a year earlier, compared to Redfin's July 23 forecast of 4.3 percent growth. The Redfin sales forecast for July was also on target, with sales up 14 percent year-over-year against the forecast of 14.3 percent. The August forecast predicted prices will rise 2.2 percent and sales will increase 4.6 percent compared to this time last year. In September, prices are expected to increase 5.3 percent from last year and sales to rise by 10 percent. In comparison to the housing market in September 2014, this years' market looks very strong, Redfin said. However, Redfin still projected demand will continue to decline into the fall months. "The market is changing week by week, and today's buyers are more likely to walk away from a home they feel is overpriced than last month's buyers were," Ackerman said. "Sellers now have to negotiate with buyers to make a sale happen."

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