In July, the National Association of Realtors announced that by its calculations, the national median existing-home price for all housing types surpassed the record national median sales price of $230,400 set nine years ago.
For many, reaching the price peak is a good reason to break out the bubbly and celebrate the official end of the housing recession. It’s been nine nasty years and more than one expert predicted we would never see the peak again in our lifetimes.
For others, reaching the peak doesn’t mean very much at all since there is no such thing as a national real estate market and its “record national median sales price” is simply an artificial calculation based on local market data. That’s one reason why other major indexes like CoreLogic and Case-Shiller differ with NAR and don’t see us passing the peak for another year or two.
For everyone in real estate, however, the price peak is more than a symbol. It’s a measure of the real progress we’ve made in an era of tight lending standards and soft incomes, and a reminder of the challenges that face homeownership in the years to come.
Local Peaks Matter More. Homes.com has been tracking price rebounds at the local level for years. Among the nation’s top 300 markets, 139 markets (46 percent) achieved full pricing recovery in May, two more than the 137 markets in May. That’s a far cry from declaring victory, like the NAR numbers, but much more meaningful. Price recovery is an important measure of the health of local markets. “Full price recovery is critical for homeowners seeking to restore equity that they lost during the housing crash and for the economic viability of the communities where they live, “said David Mele, president of Homes.com. Homes.com has found that those markets that lost the most have the longest roads back to recovery. Of the nation’s top 100 markets, the markets with minimal price declines have rebounded with an average rebound of 109%. Of the moderate price decline markets, the average rebound percentage is at 101% of the prior peak price. Of the severe price decline markets, the average rebound percentage is 84%.
One Person’s Peak is Another’s Pity Party. To people who look at homeownership only through the eyes of an investor, seeing their home return to the value it enjoyed nine years ago is not a happy thing. Rather it’s a reminder of how much more they could have made if they rented and invested the money the spent on upkeep in the stock market. These folks tend to forget they enjoyed nine years of the mortgage interest deduction and today they would likely be paying more in rent than in mortgage payments for a comparable residence, not to mention the non-financial benefits of owning your own home.
Peaks Produce Problems. It’s not a good thing that today first-time buyers are spending 2.6 times their annual income on their homes, a huge increase over the 1970s when first-time homebuyers bought homes that cost about 1.7 times their annual income, according to a recent Zillow study. First-time home buyers and mid to lower income American were feeling the squeeze back in 2006 also, but the squeeze didn’t last very long. Prices had been rising quickly and then fell precipitously, inaugurating one of the best periods for affordable homeownership in a generation. As we reach our local peaks, we are returning to the affordability problems we left behind nine years ago. First-timers are not the only ones feeling the heat. Incomes have not kept up with prices in many makes and families that could have bought a few short years ago are shut out, just rents soar through the roof.
One of the problems that peak prices and appreciation in general bring to the real estate business is the chaos of multi-bid environments, which generate pressure against commissions when sellers in some markets that are enjoying try to find lower cost solutions. Multi-bid deal also create low appraisals, which proliferate when sold prices outrun comps in hot markets. When the gap between appraisal and contract price bid up too high requires too much cash from winning buyer and too many concessions from the seller, deals disappear, making everybody a loser.
Welcome to the mountain top and enjoy the view. We’ve come a long way to get here. From now on, we’re breaking new ground.