Rising home prices in the US are exacerbating the housing affordability crisis, particularly for first-time buyers. The median price of a previously owned home in the US increased by 5.7% in April to $407,600, marking the fourth consecutive monthly increase and a record high for April prices. Data from the National Association of Realtors and S&P Global shows that home price growth has accelerated, with cities like San Diego, Chicago, and Detroit seeing significant increases. This has created challenges for prospective buyers, as housing affordability takes into account prices, household incomes, and mortgage rates. However, the rise in prices has been beneficial for homeowners, as it means their wealth has increased.
Existing home sales, which make up the majority of transactions, fell by 1.9% in April to a seasonally adjusted annual rate of 4.14 million. This marked the second consecutive month of declining sales as mortgage rates climbed above 7%. Despite this, there is some positive news in the housing market as more homes are entering the market. Lawrence Yun, NAR’s chief economist, noted that the upper-end market is experiencing growth due to an increase in supply. He also highlighted the record high home prices in April as positive news for homeowners.
The US housing market’s recovery earlier in the year was interrupted when it became evident that the Federal Reserve was unlikely to cut interest rates in the first half of 2024. This occurred during the crucial spring homebuying season. Home sales had started to rebound in early 2024 as housing supply improved, and there was anticipation of interest rate cuts by the Fed. However, inflation’s slowdown stalled, leading to a surge in bond yields and mortgage rates. The standard 30-year fixed-rate mortgage surpassed 7% in April, further tightening the grip on buyers. Low housing affordability typically results in reduced demand.
Overall, the combination of rising home prices, increasing mortgage rates, and limited housing affordability is creating challenges for Americans looking to purchase homes, especially for first-time buyers. The surge in home prices has been beneficial for homeowners, but it has made it more difficult for prospective buyers to enter the market. The recent fall in existing home sales, combined with the surge in mortgage rates, underscores the challenges facing the housing market. While there is some positive news with more homes coming to market and growth in the upper-end market, the overall landscape remains challenging for many Americans aspiring to own a home.
