Houses selling for less than $200,000 are becoming harder to find in U.S. markets as home prices continue to rise at a strong but slowing pace in 2014.
According to the FNC Residential Price Index, home prices rose by 8% in June from exactly a year ago, with the biggest price gains occurring in cities whose real estate markets were hardest hit in the financial crash of 2008. FNC Inc., a service provider for mortgage lenders and real estate appraises, said prices rose by over 15% in Las Vegas since June 2013, and over 11% in Phoenix in the same time period.
Despite the rising prices, the most depressed real estate markets have still not fully recovered. According to FNC, Las Vegas property values are still over 41% below their peak, although they remain above their all-time low in early 2012.
Declining Foreclosures Boost Prices
FNC said that foreclosures continue to decline as a share of the total housing market, with 11.7% of sales being in foreclosure, compared to 13.9% a year ago. Houses are also staying on the market for less time, with the average period of opening to close being 91 days, down from 102 days in the prior month.
FNC has seen foreclosures steadily decline for several years, which has helped boost prices steadily over the past two years. June’s year-over-year price growth was a reacceleration of May’s price rate.
California and Florida saw stronger housing markets than the rest of the country. The largest price gains were seen in Sacramento, Riverside, Calif., Miami, and Orlando.
Most cities saw prices rise, and year-over-year price declines were minimal. Of the metropolitan areas that FNC tracks, only three—Cincinnati, Cleveland, and St. Louis—saw prices fall, with St. Louis seeing the biggest price decline (2.8%), and Cleveland seeing the smallest decline (0.2%).
Low-Cost Housing Disapears
With prices rising in most parts of the country, homeowners are cheering—but home buyers are not. Lower-priced homes are becoming a smaller portion of the total market, with more homes, particularly new homes, being in the middle or higher price ranges. According to data compiled by Redfin.com, the number of houses priced below $198,000 fell by 17% in June compared to a year ago. Mid-range houses rose by 3%.
At the same time, high-end and luxury units are booming. According to Redfin, high-end housing stock has risen by 15% compared to a year ago. Cities with the largest supply of luxury housing stock—New York, San Francisco, Los Angeles, and Miami—all saw prices rise by over 10%, except for New York, where prices rose by 5.8%.
Rising Home Inventories
Although affordable homes are getting harder to find, the total number of existing homes rose by 6.5% in June from a year ago, according to a study by the National Association of Realtors. However, the NAR believes that supply remains slightly behind demand, and that the market could handle an increase of housing stock by 9% before it reaches equilibrium.
Historically low mortgage rates, which fell in mid-2014 amid falling yields on U.S. Treasuries, have helped the housing market, but the growth in luxury properties has also been propelled by all-cash buyers, many of whom are from abroad. For instance, some experts believe that 90% of high-price real estate in Miami is purchased entirely in cash.
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