October 2016 - Changing of the Guard

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TH E M R EP O RT | 55 O R I G I NAT I O N S E R V I C I N G A NA LY T I C S S E C O N DA R Y M A R K E T ANALYTICS THE LATEST Is Housing Becoming Less Affordable? Very few markets experienced rising affordability in the second quarter. B y all accounts, recent good economic news combined with solid de- mand and low mortgage rates have resulted in single-family home sales reaching levels not seen since before the crisis. Homes are selling at a higher rate—but are they more affordable? An analysis of 27 metro ar - eas conducted by on the salary one would need to afford the principal, interest, and taxes on a median-priced home in their market revealed that only three of those 27 metros were more affordable in the second quarter compared to the first (all were in Florida: Tampa, Orlando, and Miami). Mortgage rates fell from Q1 to Q2 in all 27 metro areas in the analysis—but several of the metros saw notable price gains. In Cleveland, the median home price spiked by 24 percent over the quarter; in Chicago the increase was 18 percent, and Pittsburgh and Cincinnati each saw the median home price rise by 17 percent. The median price of a home in San Francisco is now $885,600 after a 15 percent increase from Q1 to Q2. "Steadily improving local job markets and mortgage rates teetering close to all-time lows brought buyers out in force in many large and middle-tier cities," said Lawrence Yun, NAR Chief Economist. "However, with home - building activity still failing to keep up with demand and not enough current homeowners putting their homes up for sale, prices contin- ued their strong ascent—and in many markets at a rate well above income growth." The home price gains seen in the second quarter were even more surprising given the fact that in the first quarter, home prices increased by more than one percent in only six metros. Nonetheless, it's too soon to tell if the price increases experienced in Q2 are a trend or an anomaly, the analysis stated. Even with the substantial Q2 price increases, Pittsburgh, Cleveland, and Cincinnati ranked first through third for affordability based on the salary needed to afford a median priced home. In Pittsburgh, the salary needed was $32,390; Cleveland, $34,433; and Cincinnati, $37,179. The three least affordable metros were all located in California: San Francisco was first, where a salary of $161,947 was needed to afford a median-priced home, followed by San Diego ($109.440) and Los Angeles ($92,901). More Single-Family Homes Being Built for Rent While elevated from its historical average, the current 4.5 percent of single-family homes being built for rent is still a small proportion of houses being built. A s the single-family rental (SFR) mar- ket has boomed in popularity in the last few years, the number of homes being built specifically for renting is also trending upward. The Census Bureau's Quarterly Starts and Completions by Purpose and Design combined with analysis from the National Association of Homebuilders (NAHB) found that the share of single-family homes built for rent accounted for 4.5 percent of all single-family housing starts as of the end of Q2 2016, based on a one-year moving average. While this share is higher than the historical average of 2.8 percent, it is lower than the peak of 5.8 percent from early 2013. Still, the number of single-family homes built for rent experienced a significant gain for the year-long period that ended on June 30, 2016—up from 26,000 for the year-long period ending June 30, 2015, according to NAHB. The number includes only homes that are built and held for rent, and not homes built and sold for the purpose of renting. "With the onset of the Great Recession and the ongoing declines in the homeownership rate, the share of built-for-rent homes rose," NAHB Chief Economist Robert Dietz wrote. "Despite the current elevated market concentration, the total number of single-family starts built-for-rent remains low in terms of the total building market. However, after falling during 2013, the market share has grown over the past year." The built-for-rent share, though experiencing an increase in the last few years, still represents a relatively small portion of all single-family rental homes in the country. The reason for this, according to NAHB, is that the primary source of rental housing is existing homes, since homes tend to be rented out as they age. According to the 2013 American Community Survey, about 35 percent of single-family homes are being rented nationwide. To reflect the growing popularity of the single-family rental market, the Five Star Institute is hosting its second annual Single-Family Rental Summit on November 1 through 3 in Frisco, Texas. Note: The Five Star Institute is the parent company of MReport and "With homebuilding activity still failing to keep up with demand and not enough current homeowners putting their home up for sale, prices continued their strong ascent." —Lawrence Yun, NAR

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