Home prices are continuing their steady climb in the nation’s biggest cities, pushing would-be home buyers to seek affordable alternatives in the suburbs—or even other parts of the country.
With too few affordably priced abodes on the market, the cost of purchasing a home around the country jumped 5.1% nationally in July, according to the most recent data from the S&P CoreLogic Case-Shiller Indices. That was up ever so slightly from a 5% bump in June.
Prices rose considerably more in some white-hot metros such as Portland, OR, and Seattle. But here’s a surprise: In San Francisco, where the median price is a bank-account-busting $1.2 million, the cost of homeownership didn’t increase from June to July. Phew! However, prices were up 6% from the same month a year ago.
“This is right on target for what we’re expecting,” says realtor.com®‘s chief economist, Jonathan Smoke. “It is slightly less than what it was a year ago … [but it’s still] higher than normal appreciation.”
Smoke predicts home values will rise 5.2% in 2016. That’s no small chunk of change, but it’s still down from last year’s 6.8% appreciation bump for existing (i.e., not newly built) homes.
Normally appreciation is only about 1% more than inflation. But inflation is less than 2%. That means home values are increasing much more than they would in a typical year, he says.
And the reason is simple. Heated campaign rhetoric notwithstanding, potential homeowners are finally making more money again, after the housing bust of 2007 that plunged the country into a recession. And many buyers are millennials seeking to settle down in a bigger place where they can comfortably raise their children, Smoke says.
The median price of existing homes was $240,200 as of August, according to the most recent National Association of Realtors® report. Brand-new homes sold for a median of $284,000, according to the most recent U.S. Department of Commerce numbers.
Where are prices going up the most?
But, of course, the cost of becoming a homeowner in the country’s hottest metros is way higher—and it just keeps going up and up. Prices jumped a whopping 12.4% annually in Portland, OR. The median list price of a house in this hipster town, known to many as the backdrop of TV’s “Portlandia,” is $449,000, according to realtor.com data.
“This is basic economics: supply and demand,” says Realtor® Deb Counts-Tabor of Portland-based Oregon Realty. “There are a lot of people moving to Portland, and there are very few homes for sale.”
Where are they coming from? Many of these newbies are from California’s even pricier Silicon Valley, she says. (For example, the median list price in Cupertino, CA, where Apple is headquartered, is $1.6 million, according to realtor.com.) Many of these priced-out refugees from the Golden State work from their new homes and catch quick flights down the coast when they need to pop their heads into the office.
Likewise, in Seattle price tags rose 11.2% annually, according to the report. The median list price in this fellow West Coast hot spot was $575,000, according to realtor.com.
The cost of buying a property also shot up in Denver: a 9.4% rise over the past year. The median list price was $468,000, according to realtor.com.
“There’s a huge amount of people moving here,” says longtime Denver-area Realtor Kristal Kraft of the Berkshire Group, as a result of companies moving jobs to the area. “Builders can’t put [homes] up fast enough, and some of them aren’t building affordable homes for first-time home buyers.”
She’s seeing a lot of new apartments go up in the city limits, but most of the new residences for sale are in the suburbs, 30 to 40 minutes from the heart of Denver.
“We have new communities opening all the time,” she says of these large developments of single-family homes. “But new construction takes quite a while.”
What does the future hold?
Those crazy price hikes are driving many cash-strapped, wannabe buyers to hightail it out of the cities they call home, says realtor.com’s Smoke.
“They’re being forced to consider cheaper alternatives in the farther-out suburbs or in the South or the Midwest, where there’s more available affordable homes,” he says.
The future isn’t all bleak for buyers who aren’t raking in seven-figure salaries. Even in the nation’s most astronomically expensive markets, like San Francisco, double-digit price hikes are finally beginning to slow, he says. That’s because the average buyers simply can’t afford multimillion-dollar residences.
“It’s coming back down to normal,” Smoke says.
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