US homes values growing faster than expected: Report
Home values in the United States are appreciating faster than experts expected, rising almost 5% over the past year, according to the latest index report.
The April real estate market report from Zillow also shows that there are 3.4% fewer homes for sale than there were 12 months ago and home values are currently appreciating at 4.9%, almost 3% faster than Zillow predicted a year ago.
The real estate report suggest that a smaller number of homes on the market will make it harder for first time buyers. The number of entry level homes for sale is down almost 8% over the past 12 months.
Stiff competition and high demand, in addition to low inventory, stronger wage growth and low mortgage rates, are driving up home prices across the country, especially for entry level homes, which is forcing many aspiring home owners into bidding wars.
Markets with the tightest inventory have some of the fastest rising home values. Over the past two years Portland has seen an almost 405 decrease in the number of homes for sale, with home values up 15% over the past 12 months. Similar patterns hold true in hot markets like Dallas, Seattle, and Denver, where inventory is down more than 20% and home value growth is in the double digits.
In addition to low inventory, home values are rising in response to a strong job market, higher than expected wage growth and persistently low mortgage rates, the report also points out.
Those looking to purchase a home will find more homes to choose from in the condo and luxury markets. Inventory is improving in these two markets due to high end construction, with the number of homes for sale close to hitting positive growth. Buyers searching for a single family home, or in the bottom or middle of the market, will have less to choose from.
‘New construction has been sluggish over the past year. We’re building about half as many homes as we should be in a normal market. There still aren’t enough homes on the market to keep up with the high demand from every type of home buyer,’ said Zillow chief economist Svenja Gudell.
‘In many markets, those looking to buy a home in the bottom or middle of the market will need to be prepared for bidding wars and homes selling for over the asking price. This summer’s selling season’s borders will most likely be blurred again as many buyers are left without homes and will need to keep searching,’ she explained.
Homes in the top third of the housing market have more frequent price cuts than homes in the bottom and middle of the market and some 16% of top tier homes had a price cut over the past year compared to 11% of bottom tier homes and 13% of middle tier properties. Almost 125 of condos had a price cut over the past year, driven by more availability in the luxury condo market.
Zillow says that current market conditions are making it much more difficult for first time buyers to break into the home ownership market. Move-up buyers are having a slightly easier time locating available inventory, as available for sale homes are more available at higher price points, especially in the high end, luxury markets across the country.
It adds that inventory is improving much more quickly in these two markets due to high end construction, with the number of homes for sale close to hitting positive growth.
The data from Zillow also shows that rents increased by 3.2% year on year in April. While home value appreciation has grown over the last few months, rents have slowed their pace of appreciation, down from a pace of close to 7% year on year in the middle of 2015.
The report points out that this more sustainable rate of 3.2% annual appreciation, which is in line with historical averages, will also give incomes more of a chance to catch up to rents, as rental affordability has been plaguing a majority of markets across the country.
The Portland metro experienced the highest annual rent appreciation among large markets, up almost 10% since April 2014. Other markets with continued high rates of rental appreciation were San Francisco with growth of 9%, Seattle up 8.5%, San Jose up 8.1% and Denver up 7.3%.
According to propertywire, “Looking ahead Zillow expects home values to grow another 2.4% in the next 12 months with the market seeing tight inventory, bidding wars and rapidly rising home values.”
Zillow points out that new construction has been sluggish over the past year with new home sale numbers coming in at about half as many homes as should be sold in a more normal market and there still aren’t enough homes on the market to keep up with the high demand from every type of home buyer at all price points.
‘In addition, we expect this summer’s selling season’s borders to be most likely blurred again as many buyers are left without homes and will need to keep searching,’ the report concludes.