There's that old cliche about how something like, say, airfares are set. Or how to pick a hot stock in a scorching market. Just throw a dart.
Real estate investors may well profitably do that right now in the U.S. housing market. According to the National Association of Realtors (NAR), 99% of measured metro areas reported gains in the median sales price of single-family existing homes from 2Q20 to 2Q21. And fully 94% of those areas reported gains in the double digits, the trade group says today in its latest Metropolitan Median Area Prices and Affordability quarterly report.
The heat-seeking dart targets…
Pittsfield, Massachusetts, had the highest median price gain at 46.5% year over year, the NAR says, followed closely by Austin-Round Rock, Texas, at 45.1%.
The other 10 metro areas with gains above 30% were:
- Naples-Immokalee-Marco Island, Florida (41.9%)
- Boise City-Nampa, Idaho (41%)
- Barnstable, Massachusetts (37.8%)
- Boulder, Colorado (37.7%)
- Bridgeport-Stamford-Norwalk, Connecticut (37.1%)
- Cape Coral-Fort Myers, Florida (35.6%)
- Tucson, Arizona (32.6%)
- New York-Jersey City-White Plains (32.5%)
- San Francisco-Oakland-Hayward (31.9%)
- Punta Gorda, Florida (30.8%)
Eight of that group are in the South and West, while by region, the Northeast led the way with 21.8% year-over-year growth in the median price of an existing single-family home, followed by the South (21%), West (20.9%), and Midwest (17.1%).
Nationally, the median sales price of a single-family existing home is now $357,900. That's $66,800 -- or 22.9% more -- than last year at this time, the NAR says. Meanwhile, over the past three years, the typical price hike nationally is $89,900, with price gains recorded in all 182 markets the trade group tracks.
And in 46 out of those 182, the typical price gain was more than $100,000 in three years. The largest were in San Francisco-Oakland-Hayward at $315,000; San Jose-Sunnyvale-Santa Clara, California at $294,000; Anaheim-Santa Ana-Irvine, California at $279,500; Barnstable at $220,600; and Boise-City-Nampa at $206,300.
Questions of affordability even as interest rates crater
Investors need buyers who can afford the mortgage, and that's getting tougher, the NAR report says. In one year, the monthly payment on a typical existing single-family home financed at 20% down with a 30-year fixed-rate mortgage rose $196 to $1,215, the NAR says.
That's even with the effective 30-year rate down to 3.05% now compared with 3.29% at this point in 2020. And the share of the monthly mortgage payment part of the median family income rose 2.5 percentage points in a single year to 16.5%. Among first-time buyers, the NAR says, the mortgage payment on a 10% down payment loan jumped to 25% of income now from 21.2% a year ago.
That 25% is the ceiling at which a mortgage is considered affordable, and of course, where homes are most affordable varies geographically, with the most expensive markets seeing the most decay.
"Housing affordability for first-time buyers is weakening," Lawrence Yun, the NAR's chief economist, says in today's press release. "Unfortunately, the benefits of historically low interest rates are overwhelmed by home prices rising too fast, thereby requiring a higher income in order to become a homeowner."
The Millionacres bottom line
Yun says it's unlikely that such "housing wealth accumulation" will be repeated in 2022. "There are signs of more supply reaching the market and some tapering of demand," he says. "The housing market looks to move from 'super-hot' to 'warm,' with markedly slower price gains."
Depending on your situation, that could mean it's time to sell at a market peak, hang on to buy when things cool off, or consider investing in, for instance, the alternative to buying, such as your own rental property or a single-family rental real estate investment trust (REIT). Those are just some of the alternatives that can help direct your own heat-seeking dart when it comes time to toss it.