Rise in Purchasing Power Nullified by Home Price Appreciation
The First American‘s Real House Price Index discloses that the purchasing power has grown by 15.8% in July on the year-to-year chart. The monthly appreciation has been 2.2%. For the month of June, these figures were 13.7% and 1.1% respectively. The figures can be attributed to floor-low mortgage rates and salary gains.
The Real House Price Index (RHPI) has come down by 6.6% over the year and 0.8% over the last month. The pandemic notwithstanding, the median household income spiked by 5.5% on the yearly chart. This has largely accounted for greater affordability.
First American’s Chief Economist, Mark Fleming feels that “With the exception of the Great Recession in 2008-2009 and a modest decline in the 1990 recession, nominal house prices have remained flat or risen slowly, but have not declined. This demonstrates the ‘downside stickiness’ of house prices during economic decline. In the pandemic-driven recession of 2020, we’ve seen house price appreciation grow faster than in any of the economic declines in our recent past. This phenomenon of continued house price appreciation amid economic decline is unique to the housing market because sellers tend to withdraw supply to wait out the economic storm, rather than sell at lower prices.”
RHPI has risen in only 7 of the 50 biggest metro areas. Pittsburgh’s 4.21% tops the chart, followed by Cleveland, and Seattle at 2.19%, and 1.65% respectively. On the contrary, the come-downs have been really big, with Boston reporting a 13.83% drop, San Francisco keeping at Boston’s heels with 13.5%, and San Jose enduring a 12.16% decline.
All over the country, the real estate trend has only till lately been one that of holding back sales. The sellers, apprehensive about selling during the current economic doldrums, have looked to let the pandemic pass. This has resulted in a supply-demand imbalance, resulting in price appreciation across the board.
America has witnessed a never-before frequency of price wars with more than half the properties going for such bidding wars. The paucity of inventory is clearly going to be a persistent factor in the coming times. Not only are the new-listings numbers dropping but the percentage for sold houses where the construction has not yet begun is very high, too. This implies that an epiphenomenon of the pandemic is a shortage in the labor and the lumber market.
It is noticeable, however, that the buyers are getting aggressive of late, and buoyed by their increased purchasing power, they are goading the sellers into selling their homes. The sellers, finally ready to come back into the market, in the wake of this unexpected buying interest, will add to the number of homes for sale. This will bring down speculation and bidding wars in the short-term and diminish supply-demand gap in the medium run.
While the pandemic has shaken the broader picture of the economy and also each industry, the only silver lining has been the resilience and good performance of the housing industry. The mortgage rates and government stimuli are doing their bit, what’s required is more rounds of aggressive buying and fearless selling.