Home Price Growth Up; Mortgage Rates Down

Although the stock market has been less than stellar as of late, real estate appears to be a rock-solid investment. A new report released by the National Association of REALTORS this week shows that home prices continued their seemingly-unstoppable upswing in the fourth quarter of 2015. Meanwhile, mortgage rates have fallen for six consecutive weeks and are approaching their lowest point from last year. Keep reading to learn about the most and least expensive housing markets, why prices just keep rising, and whether mortgage rates will fall any further.

According to the report, the median existing single-family home price rose in 81% of the metro area markets tracked in the fourth quarter of 2015. In fact, 17% of metro areas showed double-digit price increases in that span, compared to only 12% in the fourth quarter of 2014. In actual dollars, the median existing single-family home price in the fourth quarter of 2015 stood at $222,700, up 6.9% year-over-year. This represents an acceleration of growth from the third quarter of 2015, when prices grew 5.4% year-over-year.

At the same time as this price growth occurred, home sales themselves slowed down, falling 5.4% from the third quarter to the fourth. Regardless, existing-home sales were still 2.4% higher than the 5.06 million pace during the fourth quarter of 2014.

Why are prices continuing to rise if sales are decreasing? The NAR's chief economist Lawrence Yun explains that small supply is to blame, saying that "Even with slightly cooling demand, the unshakeable trend of inadequate supply in relation to the overall pool of prospective buyers inflicted upward pressure on home prices in several metro areas." He goes on to express his belief that prices are likely to keep rising, saying “Without a significant ramp-up in new home construction and more home owners listing their homes for sale, buyers are likely to see little relief in the form of slowing price growth in the months ahead.”

A quick glance at the numbers supports his statements: there were 1.79 million existing homes available for sale at the end of the fourth quarter, down from 1.86 million at the end of 2014. The average supply during the fourth quarter also fell year-over-year, from 4.6 months to 4.9 months.

Although the strong growth in home prices has hurt affordability, this has been offset to some degree by rapidly falling mortgage rates in the early part of 2016. Freddie Mac reported this week that mortgage rates have fallen for six straight weeks and now sit at 3.65%. This is only 6 basis points away from the low point of last year, which was 3.59%. The report also states that rates may fall even more in the short term before stabilizing. 

Nationwide, the gap between the most and least expensive housing markets stood at over $850,00 in the fourth quarter. The most expensive market was the San Jose, California metro area, where the median existing single-family price was $940,000; conversely, the least expensive housing market was the Youngstown-Warren-Boardman, Ohio metro area, where the median price was just $81,200. Here are the top and bottom five metro areas in the fourth quarter of 2015 by median existing single-family home price:

Highest:

  1. San Jose, California: $940,000
  2. San Francisco, California: $781,600
  3. Honolulu, Hawaii: $716,600
  4. Anaheim-Santa Ana, California: $708,700
  5. San Diego, California: $546,800

Lowest:

  1. Youngstown-Warren-Boardman, Ohio: $81,200
  2. Cumberland, Maryland: $86,100
  3. Rockford, Illinois: $87,600
  4. Decatur, Illinois: $90,000
  5. Wichita Falls, Texas: $101,900

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