Home sales in the first quarter hit their fastest pace in a decade, a sign that rising prices and slightly higher mortgage rates haven’t deterred home buyers from rushing into the market.
Total existing-home sales climbed 1.4% in the quarter to a seasonally adjusted annual rate of 5.62 million, the highest since the first quarter of 2007, according to the National Association of Realtors.
The national median home price, meanwhile, jumped 6.9% from the same quarter a year earlier to $232,100, the sharpest price gain in nearly two years.
Demand remains strong as millennials begin to enter the housing market in force. But that could change as higher prices weigh on affordability, economists said, particularly if interest rates rise.
Many millennials have been living in cramped conditions, whether in their parents’ homes or in pricey urban apartments, “and are being released into the market at a time when affordability is becoming more challenging,” said Lawrence Yun, chief economist at the National Association of Realtors.
When accounting for population growth, the pace of sales today reflects what economists consider a normal market like that of the early 2000s, when the pace of sales was just under 5 million homes a year. The pace of sales topped out at roughly 6.2 million in 2005, at the height of the housing bubble.
Price growth, meanwhile, remains subdued compared with the bubble years, but is perking up as well.
Single-family home prices increased year-over-year in 85% of the 178 markets covered in NAR’s survey. In the fourth quarter, 89% of markets reported higher prices.
Thirty metropolitan areas experienced double-digit annual price gains, identical to the number in the fourth quarter. The markets that enjoyed the strongest price gains include Tampa, Fla., Boulder, Colo., and Cumberland, Md.
The disparity between the most and least expensive housing markets continued to grow. A midprice home in San Jose, Calif.—the most expensive metro area in the country—now costs $1.07 million, while the typical home in the cheapest market—Youngstown, Ohio—costs just $79,200.
Home prices in San Jose have shot up 10% over the past year, while prices in the Youngstown area increased 4% during that time.
Homes have become less affordable over the past year due to rising prices and mortgage rates, though they remain theoretically within reach for most families.
A buyer making a 5% down payment on the median-priced U.S. home would need an income of roughly $52,000, compared with the national median household income of just over $71,000.
A year ago, a buyer making a 5% down payment on a typical home would have needed an income of roughly $48,000.
Affordability is likely to become more challenging if prices keep rising at this pace and mortgage rates also climb. The rate for a 30-year, fixed-rate mortgage has risen to 4.05% from about 3.5% in November. Economists expect rates to inch closer to 4.5% by the end of the year, which could make affordability even more challenging.
“There will be some choke point where people can no longer afford to buy,” Mr. Yun said.
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