The National Association of Realtors' latest quarterly report on home price gains offered some promising news regarding affordability for prospective buyers.
While certain markets on the West Coast continued to experience significant appreciation, most metro areas saw price growth moderate during the second quarter, with year-over-year gains easing to their slowest pace since 2012. Based on second-quarter closings evaluated by the NAR, median prices for single-family existing homes rose in 71 percent of identified markets, but 27 percent - or 47 individual markets - saw median prices fall from the second quarter of 2013. The latter figure confirms what many analysts had predicted - that after breakneck rates of appreciation throughout 2013, particularly in more crowded metro areas, home values are rising at a more sustainable pace.
Becoming a better buyers market
Lower interest rates and inventory improvements in markets where supply had been short also led to improved sales rates in many of the areas analyzed by the NAR. Existing homes were purchased at a 5.6 percent greater rate than they were during the first quarter, though the seasonally adjusted pace of purchases remained 4.5 percent below the 2013 rate.
As NAR Chief Economist Lawrence Yun noted, the inventory issues that were squeezing many buyers out are subsiding, theoretically offering more affordable options. Markets like Orange County, California, outside of Los Angeles, where demand continues to outpace supply, are still experiencing the most significant price appreciation. A Los Angeles Times report detailed the situation in Southern California, where three different markets - Los Angeles County, Orange County and greater San Diego - ranked among the nation's 10 most expensive. In and around Los Angeles, many of the foreclosed or otherwise distressed homes have been bought up and resold, contributing to the dearth of available inventory that continues to place upward pressure on the prices of existing homes.
Yun believes the Southern California situation is no longer the norm, however, and that most of the nation is moving toward healthier supply-and-demand dynamics. The current rate of price increases appears mutually beneficial, with buyers able to capitalize on still-low interest levels and sellers still enjoying healthy equity gains that improve the ultimate return on their investments.
"National median home prices began their most recent rise during the first quarter of 2012 but had climbed to unsustainable levels given the current pace of inflation and wage growth," Yun said. "At this slower but healthier rate, homeowners can continue steadily building equity. Meanwhile, for buyers, increased supply with moderate price gains is giving them better opportunities to choose."
Yun added that new construction rates must pick up, particularly on the West Coast, for such healthy price moderation to consistently take hold. The relative lack of recently built homes in California is boosting existing values while also inflating rent prices for those who either can't afford to buy or are simply unsatisfied with the available options.
Opposite ends of the scale
In addition to the aforementioned Southern California markets, two Northern California cities ranked among the NAR's five most expensive, based on median existing home prices. San Jose topped the list, with a median second-quarter sale price of $899,500, while San Francisco ranked second at $769,600. The Honolulu metro region joined San Diego and Orange County in rounding out the top five.
The most affordable metro markets in the country included the Youngstown-Boardman-Warren, Ohio, region, which recorded a second-quarter median existing home price of $78,600, and Rockford, Illinois ($85,300), Elmira, New York ($87,800), Decatur, Illinois ($90,900) and Toledo, Ohio ($95,900) were the other areas among the five most affordable