Fiserv Case-Shiller Home Price Insights: U.S. Housing Markets Stabilizing, Affordability Reaches 40-Year High
- Conventional mortgage payment now just 12 percent of median family income
- Home prices back to 1998 levels compared to rents
- Average home prices expected to rise at annualized rate of 3.9 percent over the next five years
After years of large declines, the housing market is showing signs of
stabilization. In the fourth quarter of 2011, home prices in 70 markets,
representing 18 percent of the 384 metro areas tracked by
Markets rebounding off very large price declines include
"The year-over-year decline in average home prices does not tell the
full story of stabilization and recovery. Nearly all non-price metrics —
existing home sales, rising home order volumes, increased spending on
home improvement, a jump in multi-family construction — indicate that
the housing sector hit bottom last year and has started along a path of
slow recovery. The recovery this spring and summer will be driven by
investors, who buy primarily in lower-cost markets. In the current
environment, focusing on mortgage applications is not a true indicator
of sales activity, as investors are less likely to finance home
purchases via mortgages," says
When home prices finally hit bottom later this year, they will be 35 percent lower than their peak level in the first quarter of 2006. Due to this unprecedented decline and record-low mortgage rates, affordability has improved dramatically. The relationship between home prices and rents has returned to 1998 levels. The ratio of median single-family home price to median family income is lower than any time since 1991. For a conventional mortgage, the payment for a median-priced home represents just 12 percent of median-family income, the lowest percentage on record (since 1971). Fiserv Case Shiller projects this record-level affordability will eventually bring more first-time and trade-up buyers back into the housing market, especially as apartment rents continue to increase and new households are formed, making buying a cheaper option than renting. Growing demand from first-time and trade-up buyers will finally put a floor under home prices, ending the nearly seven-year collapse of the housing bubble.
"The precipitous drop in home prices was an immediate cause of the last recession and the financial crisis. Falling home equity has cut into household consumption and has further constrained the economic recovery," Stiff added. "However, very low prices have also started to draw in more buyers. As demand for houses ramps up, construction activity will increase and residential investment will begin to make a substantial contribution to the recovery and GDP overall."
Other highlights from the latest Fiserv Case-Shiller Indexes include:
- Some of the hardest-hit markets are expected to experience the fastest growth during the recovery. Six of the 10 markets where annualized prices are expected to rise the most over the next five years have experienced price declines of more than 50 percent from their peaks.
Conversely, home prices in markets that were spared the worst of the
housing downturn are projected to grow at a slower pace.
Texas, for example, accounts for 11 of the 39 markets where prices are projected to increase at an annualized 1.5 percent or less over the next five years.
- Of the 30 best-performing housing markets in the 2011 fourth quarter, 13 had unemployment rates of seven percent or less and 14 had a median family income above the national average.
- Seven of the 10 worst-performing markets in 2011 had unemployment rates higher than the national average and median family incomes below the national average.
Twenty-two of the 25 markets that have seen the largest decline in
home prices from peak to the end of 2011 are in
The Fiserv Case-Shiller Indexes, which include data covering thousands
of zip codes, counties, metro areas and state markets, are owned and
Representative home price data for major U.S. markets:
Change in Home Prices
(2008:Q4 to 2011:Q4)
Change in Home Prices
(2010:Q4 to 2011:Q4)
Forecast Change in Home Prices
(2011:Q4 to 2012:Q4)
- Fiserv Case-Shiller - www.caseshiller.fiserv.com
Federal Housing Finance Agency(FHFA) - http://www.fhfa.gov/
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