Are Home Prices Slipping Out of Buyers’ Reach?

Has the window shut on the opportunity to buy affordable homes? Maybe. Price increases in the last couple of years have some buyers thinking they may have missed out.

Last year Money Talks News founder Stacy Johnson warned that the window for buying an affordable home was about to close. If you want to buy, “Do it, and do it soon,” he said in the summer of 2013.

Let’s see what’s happened since then.

Rising prices

Prices have grown rapidly since last year — 13.2 percent between January 2013 and January 2014, according to the widely quoted 20-city S&P/Case-Shiller Home Price Index. Prices rose 12.4 percent in that period from 2012 to 2013.

Today’s rapid growth has some people talking “bubble.” Speaking for many a home shopper, Bloomberg reporter Megan McArtle wrote of her recent Washington, D.C., house hunt:

Now, I thought we all agreed that in 2008, prices were too high, and there was a big bubble. What are we to think of even higher prices in 2014, when the economy has been staggering along on life support for six years?

For comparison, here’s how prices in those 20 cities looked in the bubble, according to an interactive chart at The Economist using Case-Shiller’s data:

• Between 2003 and 2004, home prices grew 15.2 percent.
• Between 2004 and 2005, growth was 11.9 percent.
• Between 2000 and early 2006, the year the housing crash began, home values rose 88.5 percent.

“Two years after house prices ended their precipitous fall, housing across America is beginning to look frothy again,” The Economist writes.

What about you?

But, enough about those 20 cities. What about you? If you’re shopping for a home now, or hope to someday, it matters less whether we’re in a bubble (a technical definition) than whether you can afford a home when you want one.

Are average homebuyers getting priced out of the market today? It’s a big country. In New York, San Francisco, Boston and other big cities with rapid price run-ups, chances are you can’t buy, especially if you’re dead set on living close to downtown.

But that doesn’t mean you can’t afford a home elsewhere. The median price for all homes in the U.S. is $188,900, up 10.7 percent from January 2013, according to the National Association of Realtors. Half of homes sold for more than $188,900 and half for less.

Affordability depends on where you shop

Here’s a random sampling of median prices, from an NAR study of home prices in 172 metropolitan areas at the end of 2013:

• Rockford, Ill. — $81,400.
• Grand Rapids, Mich.– $126,200.
• Des Moines — $167,700.
• Baton Rouge, La. — $169,400.
• Raleigh-Cary, N.C. — $199,800.
• Miami — $254,900.
• Portland, Ore. — $267,500.
• Seattle — $344,400.
• Boston — $371,300.
• Boulder, Colo. — $442,800.
• Honolulu — $670,800.
• San Francisco — $682,400.

Low interest rates help

“Affordable” depends on what you earn and where you live. Zillow, the online mortgage marketplace, says:

The majority of homes nationwide are more affordable now than they were in the years leading up to the start of the housing bubble, with homebuyers currently spending a smaller share of their incomes on a mortgage than they have historically.

The reason: continued low interest rates. But the window of low prices and mortgage rates is shrinking. Zillow adds:

“As affordability worsens, we’re already beginning to see more of the kinds of worrisome trends we saw en masse during the years leading up to the housing crash. These include a greater reliance on nontraditional home financing, smaller down payments and a greater pressure to move further away from urban job centers in order to find affordable housing options,” said Zillow chief economist Dr. Stan Humphries. “We’re not in a bubble yet, but we’re beginning to see the early signs of one in some areas.”

Zillow’s affordability calculator lets you see how much home you can afford.

Shortage of homes for sale

Especially in large cities, there are too few homes on the market. Buyers compete by bidding up prices and offering cash, pushing homes out of reach for many buyers.

“Listings in Boston have fallen 26 percent from a year ago while prices in some neighborhoods experienced strong gains,” says The Boston Globe. Prices in popular Boston neighborhoods are up considerably, even from their peaks during the boom.

One big reason inventories of homes for sale are tight is that millions of homes still are underwater. RealtyTrac says 9.3 million homes — nearly a fifth of all properties with a mortgage — are worth less than the mortgage.

That’s many fewer than in May 2012, when 12.8 million mortgages were underwater. But 9 million is a big number, even bigger when you consider that many more mortgages are just slightly above water.

“There are still millions of homeowners who are in such a deep equity hole that it will take years for them to regain their equity,” says RealtyTrac spokesman Daren Blomquist.

Another big chunk of would-be sellers want to move and aren’t underwater, but they are afraid to sell for fear that, with the shortage of homes for sale, they can’t buy another.

Investors

Investors have bought up distressed homes in many cities and turned them into rentals. Their purchases helped bring prices up and they probably are behind much of the recent price increases, economist Robert Shiller told CNBC SquawkBox in an interview.

“I think maybe investors played a big role in the run-up we’ve seen in the last year,” Shiller, co-creator of the Case-Shiller index, told SquawkBox.

A few big firms have bought tens of thousands of distressed homes around the country, although those purchases are tapering off, The Wall Street Journal says.

Individual investors are a force in the market, too. “About 77 percent of investors with at least $1 million in assets own real estate,” says Bloomberg, quoting a Morgan Stanley report.

Are you trying to buy a home? Tell us what the market is like where you live by posting a comment below or at the Money Talks News Facebook page.