There are usually concerns about the affordability of a home because housing is the largest expense in the budget of many people. Many average households in the country usually devote a quarter of their income to taking care of their housing expenditures, while low-income households spend half of their income on housing. This therefore shows that the changes in house prices can significantly impact a household’s wellbeing. There have been many reports about the increase in house prices, which has made housing affordability a major concern in many areas.
Affordability sums up several issues like housing prices, housing quality, income distribution, and many household’s abilities to get enough home loans. There are many varying factors that have affected the supply of new homes in the market, and it also plays a role in housing affordability as a low supply of homes clearly leads to an uprise in the price of homes. This sometimes makes people go for a lower housing quality to be able to afford a house.
Home prices have been reported to rise by about 1.1% in November; this research was carried by CoreLogic and was reported on its Home Price Index. There has been an over 8% increase for the year over year gain, and this is higher than the 7.3% increase which was posted in October. CoreLogic has made it public that there has been a consistent growth in the price of homes since the previous years and home sales finished the year much higher than they did in 2019. Even as the sales of home increase, the supply of homes have decreased as demand continues to rise. This could be a result of the COVID-19 pandemic, which might have deterred many home sellers from putting their homes up in the market.
Although the pandemic has led to high levels of financial insecurity, there are many households that have maintained employed and succeeded in keeping the income stabilized. Such households are motivated by the low rates to purchase new homes, and this has led to a rise in demands. Down-payment requirements continue to soar due to the price of homes, and this has aggravated affordability issues, which efficiently removes low-income households out of the home-purchase market and leaves them in the renting section.
Frank Nothaft is the chief economist for the CoreLogic company, and he has stated that the demographic tailwinds fell into place due to the millennials and Generation X who are driving the housing demand. The value of homes that were previously low-priced rose one and a half times faster than homes that were previously higher-priced. This is because of the fact that many buyers purchasing homes for the first time are more likely to search for homes that fall into the lower price range.
However, CoreLogic forecasts that there will be a slow-down in buyers’ demand and more supply in the housing market this year. This means that the home price growth will slow down in 2021’s first quarter and will be at 2.5% by November. However, if there is a stimulus action, it could encourage a rise in home buyer demand from the low and middle-income families. This would only support the growth of the home price. Surprisingly, the housing market performed well in 2021 despite the effect of the COVID-19 on the economy. The economy is expected to be revitalized this year, which would help keep the demand and the home price strong throughout the year.
The national home price continues to rise, but there has been variability in the local market, especially in Phoenix and New Jersey. New Jersey saw an increase of 3.2% in home price growth, which is smaller than average; this is because most residents are moving out and seeking less-densely populated areas that would offer more space.