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Home price barometer, January 2016 update

Home Price Index, November 2015
January 27, 2016

By Pam Leibfried

In November 2015 (the latest month for which data is available) home prices increased 6.3 percent year over year from November 2014. The monthly increase vs. October 2015 was  0.5 percent. These latest price levels, as measured by the CoreLogic Home Price Index (HPI®) Report, bring average housing prices nationally to a level only 7.3 percent lower than they were at their peak in early 2006.  

Mortgage payments still relatively low for most buyers

Even though home prices are now approaching – and in some hot markets, surpassing – their peak prices, home ownership in most markets has not gotten more costly for the average home buyers. How can that be? Despite higher prices and correspondingly larger mortgages, most homeowners pay a lower monthly mortgage payment now than they would have paid for a smaller mortgage at the higher interest rates in the 1990s and 2000s. In short, lower interest rates are effectively cancelling out higher prices for the average home buyer with a 30-year fixed mortgage.

To illustrate this phenomenon, I’ll use my own condo as an example. When I bought it in May of 1995, I paid $93,000. Its current estimated value is $146,000 based on comparable condos that have sold recently in my development. That price is 63 percent higher than the price I paid in 1995, but if I sold today, the new owner would NOT pay a monthly mortgage payment 63 percent higher than mine in 1995. The payment comparison is actually pretty shocking – or at least, it certainly shocked me. I ran the numbers for a 30-year fixed mortgage financing 100 percent of the purchase price (down payments not factored in, for simplicity of math) in May 1995 vs December 2015, using rates from Freddie Mac’s 30-year mortgage rate archive. 

  • $93,000 mortgage at May 1995 rate of 8.32% APR = $703 monthly payment 
  • $146,000 mortgage at December 2015 rate of 3.96% APR = $694 monthly payment 

So instead of going up 63 percent like the price of the condo did, the monthly payment for a current buyer would be LOWER than for my 1995 mortgage! 

Price differences by housing “tier” 

CoreLogic’s pricing analysis broke sales down into four price tiers based on price levels vs. the median price of homes nationally. The only price tier which has increased enough to rise above pre-crisis levels is the Low Price tier, whose houses are now selling at 2.3 percent above 2006 peak pricing. The tier that has faired the worst? The low-to-middle price tier is still 8.9 percent below its peak price level, with middle-to-moderate homes not far behind at 8.2 percent below peak. 

 

 Price Tier Year-to-date price increase Recovery to date vs. peak market
Low
up to 75% of median price
+8.4% +2.3%
Low-to-Middle
75-100% of median price
+7.2% -8.9%
Middle-to-Moderate
100-125% of median price
+5.6% -8.2%
High
125% and up vs median price
+5.4% -5.5%

Pam Leibfried is a marketing content specialist whose love of words led to a writing and editing career. After a brief stint teaching English, she transitioned to corporate communications and spent 20 years at The Nielsen Company before joining Alliant’s content development team. Early in her work life, Pam’s friend Matt explained the benefits of a 401(k) and her dad encouraged her to start a Roth IRA. Their good counsel prompted her to prioritize retirement savings, which just might enable her to retire early so she can read more and live out the slogan on her fave T-shirt: “I have a retirement plan: I plan on quilting!”