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Record High Home Prices Intensify Affordability Challenges

CoreLogic’s latest Home Price Index (HPI) and HPI Forecast for May 2021 has found that nationally, home prices increased 15.4% in May 2021, compared to May 2020, and month-over-month, home prices increased by 2.3% compared to April 2021’s findings.

The HPI found that the converging pressures of inventory shortages and sustained demand pushed home prices to record highs in the month of May, with the year-over-year increase in home prices at its highest level since 2005. While many millennials and Gen Z home buyers continue to move into the hot market thanks to low borrowing rates, high prices are likely deterring increasing numbers of prospective buyers.

“First-time buyers are hitting a wall in many places around the country as the pace of home price rises outpace the benefits of lower borrowing costs. Younger and first-time buyers, including younger millennials, are faced with the challenge of having sufficient savings for a down payment, closing costs and cash reserves,” said Frank Martell, President and CEO of CoreLogic. “As we look to the balance of 2021, we expect price rises to continue which could very well push prospective buyers out of the market in many areas and slow home price growth over the next year.”

According to CoreLogic, 82% of consumers note housing affordability as a key problem, with an additional 33% of respondents noting they would wait to buy or not buy at all rather than make sacrifices on their purchase.

Home prices are projected to increase 3.4% by May 2022, as affordability challenges may continue to deter potential buyers and cause a slowdown in home price growth.

Regionally, in May, home prices rose sharply in the west, with Twin Falls, Idaho, experiencing the highest year-over-year increase at 35%. Coeur d’Alene, Idaho, ranked second with a year-over-year increase of 32%. At the state level, Idaho and Arizona continued to have the strongest price growth at 30.3% and 23.4%, respectively. Utah also had a 20.4% year-over-year increase as homebuyers seek out more affordable locations with lower population density and attractive outdoor amenities.

The top 10 states experiencing year-over-year price gains include:

  • Idaho +30.3%
  • Arizona +23.4%
  • Utah +20.4%
  • Indiana +20.2%
  • Montana +19.5%
  • Rhode Island +19.3%
  • Vermont +19.2%
  • Washington +19.1%
  • New Hampshire +18.9%
  • Oregon +17.6%

“There are marked differences in today’s run up in prices compared to 2005, which was a bubble fueled by risky loans and lenient underwriting,” said Dr. Frank Nothaft, Chief Economist at CoreLogic. “Today, loans with high-risk features are absent and mortgage underwriting is prudent. However, demand and supply imbalances—fueled by a drop in mortgage rates to less than one-half what they were in 2005 and a scarcity of for-sale homes—has fed the latest run up in sales prices.”

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.

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