Monthly Zillow, NAR reports show some potential homebuyers priced out of current market

July 25-31, 2022

By The Daily Record Staff

 

New data from two of the nation’s leading housing market experts shows that rising mortgage prices amid a possible economic slowdown is forcing some homebuyers out of the market for now.

 

In its highly watched monthly report, West Coast real estate analytics firm Zillow said although home shoppers are finding more options to choose from and more time to make decisions and even price cuts in some areas, affordability challenges are thinning competition from a crowded field and giving newfound leverage to those who remain. 

 

“Those who can weather this storm of rising costs are having an otherwise less stressful buying experience compared to the pandemic-fueled rush on real estate in 2021. They have more options to tour, more time to find the right house, and are less likely to face a bidding war,” said Jeff Tucker, senior economist at Zillow. “But despite this initial move toward rebalancing, the market is still less buyer-friendly than the pre-pandemic norm in most of the country. Home seekers who are priced out today are eagerly anticipating drops in prices or mortgage rates so they can step back into the ring.” 

 

According to Zillow’s July market report, annual home value appreciation eased for the third consecutive month in June, stepping down to 19.8% from a record high of 20.9% in April. But it still towers over the 4.6% year-over-year growth recorded in June 2019. The typical U.S. home value now stands at $354,165 and comes with a monthly mortgage payment that is more than 75% higher than in June 2019. 

 

Zillow’s July 19 report was followed up two days later by the influential National Association of Realtors’ (NAR) market report noting that higher mortgage rates are increasingly tipping the housing affordability scale in favor of renting over first-time buying. 

 

Nationally, the gap between monthly starter homeownership costs and rents widened by 25.5 percentage points (+$483) from January to June, according to the Realtor.com’s monthly rental report released on July 21. 

 

“With rents and for-sale home prices both hitting record-highs in June, the rising cost of financing a home purchase stands out as the clear driver of rental affordability relative to typical starter homeownership costs. In fact, our analysis shows that if not for higher mortgage rates, the rent versus first-time buying gap would have shrunk in the first half of this year, as rents grew more quickly than starter home prices,” said Realtor.com Chief Economist Danielle Hale.

 

“While more markets offered relative rental affordability in June than in January, rents are still rising across the country. Plus, many of the areas that favored renting are among the biggest tech cities, where real estate tends to come at a premium,” Hale continued. “As housing affordability remains a challenge for many Americans, it’s key to stay on top of how higher costs impact your budget, whether renting or first-time buying.”

 

Realtor.com is the official listing site of the 1.5 million-member NAR. It was acquired in November 2014 by News Corp. with NAR’s approval. The Arkansas Realtors Association (ARA), based in Little Rock, is the NAR’s affiliated member in Arkansas. ARA provides services to its other member real estate boards and associations across the state, including the Little Rock Realtors Association and other local realtor boards and associations in Central Arkansas.

 

According to the NAR affiliate, the U.S. median rental price hit a new high for the 16th consecutive month in June, but still lagged behind typical starter homeownership costs, and by a greater amount than at the start of the year. This growth is largely attributed to the skyrocketing cost of financing a home purchase, with mortgage rates jumping more than two percentage points from January to June. 

 

Although for-sale home prices also hit multiple record-highs in the first half of the year, Realtor.com’s June analysis found that mortgage rate hikes were the biggest driver of the widening affordability gap between renting and first-time buying.

 

For example, the U.S. median rental price in June hit a new high of $1,876, rising 14.1% year-over-year in the fifth consecutive month of moderation from January’s peak (+17.3%). However, overall rents remained 27.6% higher than in 2020 and all unit sizes posted double-digit annual gains: Studios, up 15.1%; one-bedrooms, up 13.8%; and two-bedrooms, up 13.6%.

 

Nationally, monthly starter homeownership costs were an average of 29.9% ($561) higher than rents in June, up from 4.4% ($78) in January. In 2021, the monthly cost to buy was $1,815, just $171 higher than rents nationwide. In addition, higher mortgage rates were the biggest driver of the widening year-over-year gap between first-time buying and renting, adding $416 to typical monthly starter home costs in June. 

 

Comparatively, national starter home listing price growth (+10.4% year-over-year to a median of $332,619) has only added $162 to first-time buying costs since June 2021, while rent increases shrunk the gap by $232.

 

Rent vs. Mortgage

 

In June, the Realtor.com report noted that a significantly greater share of the 50 largest U.S. metros favored renting over buying than at the start of the year. Among key factors driving this shift were trends seen nationwide, such as higher mortgage rates and cooling rent growth. June data also points to a correlation with economic indicators like inflation and unemployment, which were relatively lower in many of the metros with smaller gaps between monthly rents and first-time buying costs. Additionally, the top rent-favoring markets were dominated by the country’s biggest tech hubs, while the metros that favored starter homeownership were concentrated in the Midwest and South.

 

“Whether you’re looking for a rental or trying to buy your first home, our analysis highlights the importance of prioritization when deciding where to live,” said Joel Berner, senior economic research analyst for online real estate database. “Take the example of areas with smaller gaps between rents and monthly starter homeownership costs, which may still offer relatively affordable starter homeownership costs. Many of these metros are also attracting home shoppers from out-of-state, in turn driving up the overall cost of living. 

 

Similarly, Zillow reports that home values declined slightly from May to June in San Jose, Seattle, San Francisco and San Diego — all among the five most expensive metros — as well as in Austin, where home values have grown the most throughout the pandemic. Annual appreciation is still robust in these metros — from 15.4% in San Francisco to 25.2% in Austin. 

 

Inventory has risen steadily over the past few months, bringing an annual deficit of 30.4% in January down to 9.1% in June. But the total pandemic hole is far from being filled as inventory is still down 46% since June 2019, said the Seattle-based real estate hub.

 

Extremely expensive metros and those with the largest run-up in prices over the course of the pandemic — San Francisco, Austin, Phoenix and Seattle — have inventory levels closest to where they were in 2019. This indicates competition in these areas is easing up more quickly than the national average. Median time on the market has ticked up, meaning buyers have slightly more time to shop. Listings that go pending are typically doing so in seven days, meaning competitively priced homes are still selling rapidly. 

 

Conversely, of the 15 major metros with the smallest monthly pullback in sales, 10 are among the 15 least-expensive large cities. Typical U.S. rents rose 0.8% from May and are now $2,007 per month, crossing the $2,000 threshold for the first time. Annual rent growth has eased steadily from a record-high 17.2% in February to 14.8% in June. Rents are up 24.6%, nearly $400 per month since June 2019.

 

“A rapid run-up in rents that peaked in February was likely a one-time event, driven by a return to cities and people moving out of shared apartments or their parents’ house. We’re expecting rent growth to ease back down over the next several months as vacancy rates rise above historic lows,” said Tucker. “One factor that could slow the return to normal is the high cost of buying a home, which will encourage many renters to renew their lease instead.”  

 

Photo Captions:

 

1. New data illustrates how higher mortgage rates are increasingly tipping the housing affordability scale in favor of renting over first-time buying. Nationally, the gap between monthly starter homeownership costs and rents widened by 25.5 percentage points (+$483) from January to June, according to Realtor.com.

 

2. Rental prices, which have passed $2,000 for the first time, are still more affordable than buying a starter home in three-quarters of the nation's largest metropolitan areas, according to Zillow.

 

 

 

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