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Cycle of Price Pain: Soaring Home Prices Trap Potential Buyers in Rentals

Tight inventories and strong demand are combining to push starter home prices out of the reach of buyers, keeping them in rentals.  As a result, rents are rising even more, trapping young households in a cycle of price pain with no escape.

The latest September data from the CoreLogic HP reports home prices nationwide, including distressed* sales, increased by 6.4 percent over September 2014 and increased by 0.6 percent in September 2015 compared with August 2015.

Likewise, NAR reported the September median existing–home price2 for all housing types in September was $221,900-6.1 percent above September 2014 ($209,100). September’s price increase marks the 43rd consecutive month of year–over–year gains. has September prices 6 percent above last year’s level with median age of inventory down 4.3 percent.  Case Shiller’s 20 city index is expected to reach a 5.1 percent year over year increase.

“Just like buying stocks, no one wants to buy a house when the price is high,: writes CoreLogic economist Shu Chen.  Her research finds that potential buyers now are caught in a vice between soaring home prices and rising rents.

CoreLogic chose 30 Core Based Statistical Areas (CBSAs) across the country based on their Multiple Listing Service (MLS) coverage since 2005. They indexed the median home price and rent to 100 on January 2005.  According to CoreLogic MLS data, rents didn’t drop significantly during the crisis, and have continued to increase as home prices have increased after the crisis. The median home price reached a new peak in June 2015, 3.5 percent higher than the pre-crisis peak and 40.5 percent higher than the trough in January 2008. Rents were more stable during the crisis because a number of households lost their homes to foreclosure.

But starting in 2012, rent prices began to increase, following the home price trends with lags of one to two months. As the housing market continues to heal and the number of homes for sale remains low, the rental market is likely to remain robust over the next few years, she concluded.

As of the second quarter of 2015, the CPI-Shelter Index, a measure of rent payments, was up 45 percent compared to the level in the first quarter of 2000. On the other hand, mortgage payments were only six percent higher on account of low mortgage rates, NAR reports.

“Although rents are rising faster than mortgage payments, the rentership rate has remained elevated, likely due to a mix of factors such as lifestyle choice, financial constraints for younger households, tight underwriting standards, and increasing unaffordability as tight inventory continues to push up prices. As of August 2015, the median home price of all existing homes is 47 percent higher than in Febuary 2012 when prices hit a low of $156,100,”  said NAR’s current Realtor Confidence Index.



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