Rising Home Prices Are Putting a Strain on the U.S. Housing Market

Staff Report

Thursday, December 14th, 2017

Sustained, rapid home appreciation is weakening the near-term outlook for the U.S. housing market, according to Nationwide's latest Health of Housing Markets Report.

"The biggest concern with regard to the housing market in 2017, especially as the year ends, is that persistent price gains are reducing affordability," said David Berson, Nationwide senior vice president and chief economist. "The housing market is still moving forward thanks to solid job gains, but it's showing signs of strain. We're watching to see if household formations, income, job, and mortgage trends can sustain the market's health."

House price gains continue to run at a pace well above the long-term average as historically few homes on the market create heightened competition among homebuyers. Job gains, rising incomes, and a healthy mortgage market still support a positive – although slightly less optimistic than last quarter – outlook for the U.S. housing market.

The outlook for the vast majority of regional housing markets across the U.S. remains upbeat as more than 80 percent of metro areas have a positive ranking. Moreover, markets with strong ties to the oil and gas industries are among the most improved in 2017 due to solid job growth and rising housing demand.

The 10 top metro areas in the index are, in order: Waterloo-Cedar Falls, Iowa; Carbondale-Marion, Ill.; Philadelphia; Valdosta, Ga.; The Villages, Fla.; Canton-Massillon, Ohio; Gadsden, Ala.; Little Rock-North Little Rock, Ark.; Trenton, N.J.; and, Morgantown, W.Va.

In order, the bottom 10 are: Rapid City, S.D.; Brunswick, Ga.; Rochester, Minn.; Sioux Falls, S.D.; New Orleans-Metairie, La.; Dallas-Plano-Irving, Texas; Victoria1, Texas; Morristown, Tenn.; Waco, Texas; and, Bangor, Maine.

Underwater despite rapid appreciation

Despite continued rapid home appreciation across the country, nearly a quarter of metro markets have not fully recovered from their price peaks before the housing market crash of a decade ago, including a few that are still off by more than 20 percent.

As a result, homeowners in those markets are more likely to be underwater in their mortgages – even today. The national share of mortgages that have negative equity is near 5 percent. That number doubles for homeowners who live in markets with prices still below their prior peaks.

Major markets that remain below their prior price peaks are (percent below in parenthesis):

  • Las Vegas-Henderson, Nev. (27.7)

  • Bakersfield, Calif. (23.1)

  • Fresno, Calif. (21.5)

  • Tucson, Ariz. (20.3)

  • Orlando-Kissimmee, Fla. (19.7)

  • Camden, N.J. (18.7)

  • Fort Lauderdale, Fla. (16.9)

  • Riverside-San Bernardino, Calif. (16.4)

  • Phoenix-Mesa, Ariz. (16.2)

  • Naples, Fla. (16.2)

  • Stockton-Lodi, Calif. (15.8)

  • West Palm Beach-Boca Raton, Fla. (14.8)

  • Newark, N.J. (14.5)

  • Jacksonville, Fla. (13.1)

  • Detroit-Dearborn, Mich. (12.8)