Homeowners Play Large Part in Soaring House Prices: Economist
Prospective home buyers leave a property for sale during an Open House in a neighborhood in Clarksburg, Maryland on September 3, 2023. Home prices have soared in the U.S. to record levels.
Homeowners, who have benefited from property values going up, are contributing to prices rising to record levels, a housing economist said, as profits from selling their homes are helping to finance their next purchase, fueling the trend of expensive homes in the market.
On Tuesday, the CoreLogic S&P Case-Shiller Index showed that home prices rose by 6.3 percent on a yearly basis in the 10th consecutive monthly price gain for the sector. While there was evidence that the pace of increases was slowing, the market is likely to see prices "remain robust" this year, according to CoreLogic chief economist Selma Hepp.
"Home prices have been largely impervious to higher mortgage rates and soaring homeownership costs in many markets and particularly for the high-tier segment of the housing market," she said in a note. "This has been in part due to existing homeowners in high-growth markets cashing in their accumulated home equity and having larger down payments or all cash to pay for their new homes."
But a good thing for homeowners has come at the expense of buyers, who are having to navigate a market of high prices and elevated borrowing costs. Those twin challenges are making it tough for buyers to acquire properties.
"What higher homeownership costs mean for first-time buyers is that it is increasingly more unaffordable and challenging to enter the housing market," Hepp said. "Given the continued expectation of increasing home prices, only a decline in mortgage rates and/or an increase in wages will help improve the affordability gap."
As prices have risen to record levels, American homeowners have seen the value of their homes soar.
In the first quarter of this year, the equity of homes jumped by nearly 10 percent compared to 2023 adding a total of $1.5 trillion of value to houses, according to a CoreLogic analysis.
"Owners are also seeing their equity approach the historic peaks of 2023, close to a total of $305,000 per owner. Importantly, higher prices have also lifted some 190,000 homeowners out of negative equity," Hepp said earlier this month.
That is buoying sellers' ability to acquire new homes, Hepp added Tuesday.
"Increases in prices are helping current homeowners build equity, which in turn can be used to purchase another home," she said. "San Francisco, Boston and Seattle are among the markets with the highest accumulated equity among borrowers, but these are also metros with generally higher incomes."
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