Current Pace of Home Price Growth May Be Untenable

Home prices have been rising steadily over the past six years with formidable demand, but National Association of Realtors chief economist Lawrence Yun says current price growth "is simply not sustainable." 

Responding to the latest price reading from the S&P CoreLogic Case Shiller Home Price Indices, Yun says, "a typical home price has increased by 48 percent while the average wage rate has grown by only 14 percent." Zillow's senior economist Aaron Terrazas posits that that buyer demand is so strong that it will be able to support home price increases, but a monthly Redfin survey found that fewer homebuyers were making offers. Says Redfin chief economist Nela Richardson, "April was the first time in 27 months that we saw a year-over-year decline in the number of customers touring homes," citing fewer listings from March, though listings grew in April, CNBC reports. 

Meanwhile the home price gains are widest on the low end of the market, where supply is leanest. That is why home sales have been dropping most on the low end. Evidence is now mounting that a growing number of first-time buyers are giving up and dropping out of the market altogether. Sales to first-time buyers dropped 2 percent in the first quarter of this year compared with the first quarter of 2017, according to Genworth Mortgage Insurance. Competition from all-cash investors continues to thwart first-time buyers, most of whom are reliant on mortgage financing. With so little supply available, bidding wars are the rule, rather than the exception.

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