The median-income household could afford a home priced at no more than $350,000, coincidentally the median sale price of an existing home.
“If housing is appropriately valued, house-buying power should equal or exceed the median sale price of a home. At a national level, the housing market is neither overvalued nor undervalued by this metric,” Fleming said in the report.
Fleming noted that while household income increased by 3.7% since March 2023, boosting consumer house-buying power, it was not enough to offset the affordability loss from higher mortgage rates and rising nominal prices. Consumer house-buying power, factoring income and mortgage rate changes, decreased by 0.1% between February and March 2024, but increased by 0.8% year-over-year.
Overvalued and undervalued markets
However, the picture varies across different markets. Of the top 50 markets tracked, 22 were considered overvalued in March, meaning the median existing home sale price exceeded house-buying power. The most overvalued market was San Jose, California, where the median consumer house-buying power was $723,000, significantly below the median sale price of $1,430,000.
“In markets considered overvalued, the chronic housing supply shortage prevents prices from adjusting downward enough to reflect the affordability reality. Additionally, house prices are ‘downside sticky.’ Home sellers would rather withdraw from the market than sell at lower prices,” Fleming explained.
Source: mpamag.com