Many of my posts have chronicled the soaring cost of housing and resulting difficulty that many people face in acquiring a home. The problem is particularly acute for first time buyers, 49% of whom report requiring family assistance to make the necessary down payment. Over the past five years, the cost of the median home rose 52% in nominal terms and 23.5% after adjustment for inflation. The Federal Reserve Bank of Atlanta produces the following chart which directly addresses the affordability issue. The orange and blue lines depict the income required to purchase the average home and actual median income, respectively. The gap is at a historic high.
A number of housing statistics reflect the impact of this gap. The number of first-time buyers is at a record low, mortgage applications have fallen back to 1995 levels, sales of existing homes fell 2.4% last month from a year ago, and the inventory of existing homes for sale is at a five-year high. As shown below, the inventory of unsold new homes has not been at the current level since the housing crisis of 2009.
Yet, the median sales price of $414,000 is up 1.8% versus one year ago and only about 6% below the Covid induced peak in the fourth quarter of 2022.
However, a new Realtor.com report suggests that sellers may be overestimating the strength of the market. That organization conducted a survey in March in which 81% of sellers believed they would achieve their asking price or higher. Yet, 18% of listings nationally saw price reductions in April. As shown below, cuts are most pronounced in the South and West, but there has been an uptick in price reductions in most states. Is this an early sign of cooling in this important market?
