Home prices rose almost 9% on a year-over-year basis in February. That’s the biggest gain in four years. U.S. house prices are now 6.3% higher than their peak in July 2006. The ratio of house prices to income is creeping toward levels hit during the height of the last real estate bubble, yet housing affordability remains significantly better. What’s the difference between today and 2006?
One of the biggest differences is the level of mortgage rates. At a maximum 28% of gross monthly income (ignoring taxes and insurance) today’s median income family can afford a mortgage of $356,000. Raise those rates to 6.0%, which is what they averaged in 2006, and the maximum affordable mortgage falls about 20%.
Home prices in the U.S. surged 8.8 percent in February — the biggest monthly gain in four years — as buyers battled for an increasingly scarce resource: homes.
While sales were little changed amid the thin inventory, the median price across 172 large metropolitan areas jumped to $285,700, according to a report Thursday from brokerage Redfin Corp. It was the 72nd straight month of year-over-year increases since the market bottomed in 2012.
Bloomberg has more.
Jeremy Jones, CFA
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