Some new data has people asking the question, has the real estate market peaked? The prices for rents in many areas continue to rise. What goes up, must come down, right? The song says so and in reality we remember 2006 and then 2009. Double digit increases in housing payments due to higher prices and higher rates are sure to change the financial landscape.
Has the real estate market peaked?
Recent income growth hasn’t kept up with rising mortgage rates and home prices. This is according to a new report by Black Knight (headquartered in Jacksonville, FL), a real estate technology and data firm. Rising home prices and mortgage rates have increased the monthly payment of a median-priced home purchased with a 20 percent down payment on a 30-year mortgage by $150 per month. That marks about a 14 percent increase since the start of 2018.
Seven states are now less affordable than their long-term norms; 12 more states are approaching that point, according to the report. The report also cautions that housing affordability is likely to worsen across the country. We already know that builders are feeling pressure from not enough man power, then rising lumber costs and now higher rates.
Path not sustainable
“Though much of the country remains more affordable than long-term norms, the current trajectory would change that sooner rather than later,” says Ben Graboske, executive vice president of Black Knight’s Data & Analytics division. “The current combination of home price and interest rate increases isn’t sustainable,” he says. Incomes have been growing at a rate of 4.37 percent annually compared to an average of 2.75 percent over 25 years, Graboske notes. It now takes 22.8% of income to make the housing payment. Its 24% here in Florida, again begging the question, has the real estate market peaked? At the bottom of the cycle in 2012, housing payments were only 17% of income.
“A half-percentage point increase in interest rates each year, combined with the current rate of [monthly home price appreciation], would push affordability to an all-time low by 2023,” he says. Washington, D.C., owners need the largest share of median income at 40 percent to purchase a median-priced home. Next is California (38 percent), then Hawaii (35 percent), and Maine (33 percent), according to the report. This is a far cry from my Buy or Rent report in 2017.
Glass half full or half empty
So while we are seeing lots of people leaving the higher expense states, we are seeing growth in other areas. California with its higher taxes make it harder for people to find affordable housing. Same with the DC area, but really West Virginia? Even Mississippi, but these poorer states have lower income levels so when wages do not grow, and housing costs rise, they are hit harder than most states.
This could be the opportunity for most to GET OUT OF States where it costs more to live now. Sell into the real estate rally and put the money to use elsewhere. People who purchased in 2012 and 2013 should now look to capitalize on a great return. There is no harm in doing a 1031 exchange and rolling profits into a new solution. Call me to discuss your next real estate investment at (904) 210-6399.