Home prices and sales are up, but who’s buying?
Home values in 20 U.S. cities rose 5 percent for the year ending in March, according to the S&P Case-Shiller index out on Tuesday.
Five percent is better than economists expected and is solid, especially when you throw in that the pace of new home sales sped up substantially to 6.8 percent in April, according to the Commerce Department.
One of those new home sales was courtesy of Tara Ilsley Murillo, 28, and her husband in Durham, North Carolina.
“It was cheaper than renting,” she says. And she was able to find a home that was significantly below the national average of $297,300. “Yeah I’m young. It’s my first home, so it was very below the average.”
Economists the country over are happy for Ilsley Murillo, whether they know it or not. Not simply because she is spending as new home owners do – “we started a garden, we’re putting up a fence for our crazy dog” – but because she is part of an elusive group.
Twenty-five to 34-year-olds have not been as present in the housing market as they need to be in order to drive the housing market, and the economic growth tied to it, back to pre-recession levels.
“The percentage of 25–34-year-olds with a job has increased,” says Steve Blitz, chief economist for ITG. “It’s recovered about two-thirds of the drop from the pre-recession high,” he says, “and leaving that one-third out is one of several reasons why the level of home sales has recovered but not to pre-recession levels.”
Blitz says the growth in home sales may just be things getting back to normal after this past winter, which proved sluggish for housing and gross domestic product growth as a whole.
And it’s very unlikely the rise in home prices is about young first-time homeowners.
“I think it means there [are] some places in the country like San Francisco, Denver and Dallas where there’s not enough houses to buy right now,” says David Blitzer, director of the S&P Dow Jones Indices which releases the Case-Schiller Index.
The places where home prices are rising precipitously aren’t where the Tara Ilsley Murillos are buying, it’s where they can’t.
“The low end is clearly not participating, and that’s a lot of new homes and first-time home buyers,” Blitzer says.
This situation has some cruel ironies. Those least able to buy are the ones who are paying the most, according to real estate data provider Zillow. Renters are on average paying double the percentage of income that owners do.
Home-price growth is outstripping income growth on the whole as well.
If, over the years, says Blitzer, “you continue to see home prices rise faster than wages and salary and income, unless something else gives, like banks become more open minded about giving everyone mortgages, it has to narrow the pool” of those who can afford to own a home.
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