The spring house price rally of 2016 shows signs of weakness because buyers can’t afford high house prices despite very low mortgage interest rates.
Most housing analysts predicted a robust spring rally with increasing home sales and increasing prices. With low unemployment, an improving economy, and budding wage growth, the signs all pointed to a strong spring market. Unfortunately, now that house prices reached the previous peak in many areas
, fewer and fewer buyers can afford them.
When house prices go up absent an increase in wages -- which they have over the last four years in California -- affordability declines. In simpler terms, if potential buyers don’t make more money, but prices go up anyway, fewer buyers can afford to buy, and those that do must substitute down to lower quality housing. This phenomenon prices out marginal buyers, and it[READ MORE]