Winter 2016 Guide to House Prices

House prices are determined by housing supply, housing demand and housing affordability.

Housing Supply: What's the Outlook?

This chart illustrates the supply of homes for sale as reported by the US Census Bureau.

This measurement of housing supply illustrates how many months it would take to sell all the houses currently listed for sale, at the current pace of home sales. For example, if there are 600 homes currently listed for sale, and an average of 100 homes are selling each month, there would be a 6-month housing supply. This is because it would take 6-months to sell all the homes currently listed for sale.

Throughout 2015, housing supply has fluctuated between 5 months and 6 months on a national level. We expect the housing supply to remain near current levels during the winter of 2016.

Housing Demand: What's the Trend?

Housing demand tends to drop in the winter because most people buy homes during the spring and summer.

Therefore, we expect housing demand to decline throughout the winter of 2016 as normal.   This is good news for homebuyers because:

• A 5-6 month supply of homes is considered a balanced market and buyers can often find good deals
• Sellers tend to lower their list price during the winter because they realize that housing demand normally declines during that time
• Consumer sentiment has remained at nine-year highs, meaning that housing demand is likely to be very robust in spring/summer of 2016

Housing Affordability: Can Buyers Afford Houses at Current Prices?

The National Association of Realtors publishes a "Housing Affordability Index". A value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. An index above 100 signifies that a family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20 percent down payment. For example, today’s reading in the 160 range means that median-income families have 160% of the income required to qualify for a mortgage with a 20% down payment.

As you can see from the chart, the housing affordability index was generally between 70 and 110 in the 1980s. People were really struggling to afford houses!

In the 1990s, the affordability index was generally between 120 and 140. During the housing bubble, the affordability index hit a low of 100. All this makes today’s reading in the 160 range VERY affordable by historical standards.  Keep in mind that housing affordability in your situation could be higher or lower depending on the amount of your down payment and the mortgage strategy you choose.

Conclusion: we anticipate mixed results in relation to house prices over the next several months because housing supply is likely to remain near current levels, housing demand is likely to go down slightly vs. the summer, and houses will continue to remain affordable for certain buyers.  Please contact me for specific information on housing supply, housing demand and housing affordability in your local market.