Homeowners Are Fueling Record Home Prices, Economist Says: 'Only A Decline In Mortgage Rates' Will Help Improve Affordability

The housing market continues to reach new heights, with home prices rising for the tenth consecutive month. According to CoreLogic S&P Case-Shiller Index data, price increases are largely driven by existing homeowners leveraging their accumulated equity, worsening affordability challenges for first-time buyers.

The index reported a 6.3% year-over-year increase in home prices nationally in April, following a peak of 6.5% in the previous two months. While the pace of growth has slowed slightly, prices are still at all-time highs, now 4% above their June 2022 peak.

Don't Miss:

• If there was a new fund backed by Jeff Bezos offering a 7-9% target yield with monthly dividends would you invest in it?
• Warren Buffett once said, "If you don't find a way to make money while you sleep, you will work until you die." This high-yield real estate fund, offering an 8% yield, makes earning passive income easier than ever. 

"As witnessed over the last couple of years, home prices have been largely impervious to higher mortgage rates and soaring homeownership costs in many markets and particularly for the high-tier segment of the housing market," said Selma Hepp, CoreLogic chief economist and author of the report. "This has been in part due to existing homeowners in high-growth markets cashing in their accumulated home equity and having larger down payments or all cash to pay for their new homes."

According to CoreLogic, the "cashing in" trend is deepening the divide in the housing market. Current homeowners have seen gains in wealth and equity, with the average homeowner’s equity approaching $305,000 — a figure first recorded in 2023 and representing a 10% increase from the previous year.

The accumulated wealth enables homeowners to finance new purchases, even in the current high-interest-rate environment. CoreLogic's Homeowner Equity Insights for Q1 2024 reveals that it has also lifted roughly 190,000 homeowners out of negative equity, reducing the percentage of underwater mortgages to about 1.8%.

Trending: This real estate fund backed by Uber CEO Dara Khosrowshahi gives you instant access to a portfolio of rental properties, and you only need $100 to get started.

While CoreLogic notes that this is a boon to existing homeowners, those high prices have contributed to higher market entry barriers, increasingly locking out potential first-time buyers from the housing market.

"Unfortunately, what higher homeownership costs mean for first-time buyers is that it is increasingly more unaffordable and challenging to enter the housing market," the economist said in the report.

The impact varies geographically, however. According to the report, San Diego led the 20-city composite index with a 10.3% annual gain, followed by New York at 9.4% and Chicago at 8.7%. Markets with the highest accumulated equity among borrowers, like San Francisco, Boston, and Seattle, continue to see strong price growth.

Conversely, some markets that saw excessive gains during the pandemic are now witnessing a reset. Portland, Oregon, and Denver were the slowest-appreciating markets, with less than 2% annual gains.

CoreLogic’s data suggests that despite high mortgage rates, the persistent rise in home prices indicates that the housing market remains divided between those with existing equity and those attempting to enter the market for the first time.

"Given the continued expectation of increasing home prices, only a decline in mortgage rates and/or an increase in wages will help improve the affordability gap," Hepp said.

Keep Reading:

• Elon Musk and Jeff Bezos are bullish on one city that could dethrone New York and become the new financial capital of the US. 
• This Jeff Bezos-backed startup will allow you to become a landlord in just 10 minutes, and you only need $100.