For the second consecutive month, pending home sales fell slightly in October, dipping by 1.1% according to the National Association of Realtors by 1.1%. The drop points to a growing affordability problem for home buyers, who may be witnessing rising home prices, said Lawrence Yun, NAR’s chief economist.
“The housing market is still hot, but we may be starting to see rising home prices hurting affordability,” he said.
The S&P CoreLogic Case-Shiller US National Home Price NSA Index also recently made clear that affordability is taking a hit. The indicator posted a 7.0% annual gain in September, up from 5.8% in August. It hasn’t hit 7% in over six years since May 2014.
“The combination of scarce housing, low interest rates, plus very strong demand “has pushed home prices to levels that are making it difficult to save for a payment, particularly among first-time buyers, who don’t have the luxury of using housing equity from a sale to use as a down payment,” said Yun.
The escalation of home prices has many ramifications including one for multifamily and single-family rental homes: it could push more people into the rental market, especially as rents lag housing prices.
In September US single-family rent rose 2.5% year over year, according to CoreLogic Insights.
It reports that low-priced and high-priced rentals grew at roughly the same rate in September, a big shift from the six-year trend of low-priced rentals growing significantly faster than high-priced rentals. Rent prices for the low-end tier—defined as properties with rent prices less than 75% of the regional median—increased 2.4% year over year in September, down from 3.7% in September 2019.
Meanwhile, higher-priced rentals—defined as properties with rent prices greater than 125% of a region’s median rent—increased 2.3% in September 2020, down from a 2.7% jump last September.
In some cases, potential home owners are waiting out the market in rental units, especially while they test out new locations in which to live. As a recent study by Upwork reported, migration from dense cities has become a major trend during the pandemic, and one of its drivers has been housing affordability.
A variety of factors are fueling the shift out of major cities, including the rise in popularity of remote work, making it possible for many workers to do their jobs from anywhere. In the time of uncertainty brought about by the pandemic, survey respondents also indicated they’re looking to reduce their housing costs.
Among the 20,000 Americans polled by Upwork, between 14-23 million of US households plan to move, in many cases out of major cities and into less expensive housing markets. Over half (52.5%) of those surveyed are planning to move to a house that is significantly more affordable than their current home.
Specifically, more than one in five are planning to move into homes that are at least 50% less expensive than their current location. And altogether, 52.5% are planning to move to a house that is at least 10% cheaper than their current home, while just 25% are planning to move into a more expensive home.