Housing prices and affordability

It’s been a long time coming. According to the Federal Housing Finance Agency, which publishes a measure of single-family house prices, U.S. housing prices have finally recovered from the housing bubble of the mid-2000s. That bubble burst in 2007 and ushered in five consecutive years of declines, which culminated in a drop of nearly 18 percent.

While the FHFA’s housing price index does not represent the entire market for single-family houses, it does represent a major portion of it. According to the FHFA:

“The HPI [housing price index] is a broad measure of the movement of single-family house prices. The HPI is a weighted, repeat-sales index, meaning that it measures average price changes in repeat sales or refinancings on the same properties. This information is obtained by reviewing repeat mortgage transactions on single-family properties whose mortgages have been purchased or securitized by Fannie Mae or Freddie Mac since January 1975.”

Fannie Mae and Freddie Mac are nicknames for the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, whose mission is to provide funds to lending institutions that make housing loans. Fannie Mae and Freddie Mac accomplish that mission by buying mortgages from lending institutions and reselling those mortgages to investors. To entice investors, Fannie Mae and Freddie Mac cover losses investors might incur when home owners default on their mortgage payments. Fannie Mae and Freddie Mac were both created by acts of Congress and are overseen by the FHFA.

The FHFA’s price index is useful for comparing trends in housing prices over time and over different geographic areas, especially for low- and moderate-income families, as required by the Fannie Mae and Freddie Mac charters.

The charts in this article are based on FHFA housing price data for the U.S., Essex County, and Franklin County. Again, according to the FHFA:

“The HPI serves as a timely, accurate indicator of house price trends at various geographic levels. Because of the breadth of the sample, it provides more information than is available in other house price indexes. It also provides housing economists with an improved analytical tool that is useful for estimating changes in the rates of mortgage defaults, prepayments and housing affordability in specific geographic areas.”

The FHFA’s price index shows U.S. housing prices hit new highs in both 2016 and 2017. Compared with the 2007 peak, U.S. housing prices were up a skimpy three-tenths (0.3) of a percent in 2016 but were solidified with an additional gain of nearly seven percent increase in 2017.

The story is similar for Essex and Franklin counties although, locally, we lagged the national trends. Housing prices in Essex and Franklin counties both hit peaks in 2008, one year after U.S. housing prices hit their peaks. Essex County housing prices bottomed out in 2015 and rose in 2016 and 2017, although they have not yet fully recovered.

Franklin County housing prices fared a bit better than prices in Essex County as they hit bottom in 2011 and set a new high in 2017.

The HPI is a reliable indicator of trends in housing prices although it is not the only indicator. S&P/Case-Shiller also publishes a home price index for the U.S. and 20 major metropolitan areas of the U.S. Similar to the HPI, the S&P/Case-Shiller index shows U.S. housing prices hit a peak in July 2006, bottomed out in February 2012 and fully recovered by December 2016.

The experiences of Realtor Bob Miller of Merrill L. Thomas reflect these trends. According to Mr. Miller, “the Saranac Lake, Lake Placid, and Wilmington real estate markets have been very strong the last several years, and it appears to be getting even stronger. There is tremendous demand for primary homes as well as vacation homes, with very little inventory.  With little supply and high demand, it is appearing more and more to be a seller’s market.  That said, homeowners considering selling should be aware that the local real estate market is still price sensitive. To be successful and command top dollar, sellers should price appropriately, using past sales and the advice of an experienced Realtor.”

Housing affordability

Even though housing prices have attained new highs, single-family houses still appear to be within reach of most families. The National Association of Realtors publishes a Monthly Housing Affordability Index, which indicates single-family homes are very affordable for the average family. Their index “measures whether or not a typical family earns enough income to qualify for a mortgage loan on a typical home.” For 2017, their data show the average (median) family income was $73,545, which was nearly 1.6 times higher than needed to afford a median-priced home with a price tag of $248,800.

Similar data from the state Department of Taxation and Finance Property Tax and Assessment Administration show, in 2017, the average (median) sales price of residential properties was $158,730 in Essex County and $100,000 in Franklin County. Also, given the latest U.S. Census Bureau data, in 2016, median household income was $50,506 in Essex County and $49,062 in Franklin County. Given those statistics, residential housing appears to be much more affordable locally than in most areas of the U.S.

Still, Mr. Miller cautions “housing prices in our area can be challenging for first-time home buyers.” He suggests “it would be wise for anyone thinking of purchasing a home in the future to have a conversation with a local lending officer.  They can provide the info needed to help home buyers see the pathway to home ownership.”

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