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The first US city where average homes cost over $1 million

Author: Bob Bryan

San Jose’s homes are historically expensive.

According to data out Wednesday from the National Association of Realtors, the median price of a home in the California city is now over $1 million — $1,085,000 to be exact — the first time that the group has registered such a high figure in a metro area.

All in all, during the second quarter, home prices increased in 83% of the 178 metro areas that NAR tracks, and the average price of a single-family home nationwide increased 4.9% year-over-year, to $240,700.

The rise in prices also highlighted the vast shortage of homes being built, according to Lawrence Yun, the chief economist for NAR.

“Despite falling mortgage rates and a small increase in the national family median income ($68,774), swiftly rising home prices caused affordability to decline in the second quarter compared to a year ago. To purchase a single-family home at the national median price, a buyer making a 5 percent down payment would need an income of $52,255, a 10 percent down payment would require an income of $49,504, and $44,004 would be needed for a 20 percent down payment.”

“However, with homebuilding activity still failing to keep up with demand and not enough current homeowners putting their home up for sale, prices continued their strong ascent — and in many markets at a rate well above income growth,” Yun said in the report.

We’ve highlighted this problem numerous times, dubbing it “the new housing crisis,” and the NAR data reiterates that the supply of homes on the market — both new and existing — is running well below demand, pushing prices up and keeping first-time homebuyers out of the market.

Yun noted that the rate of new homes coming onto the market is well under the average for most recovery periods, and as incomes and wages rise, more people are looking to buy homes. Couple that with people in existing homes being disincentivized to move, and you get bidding wars that push prices out of many buyers’ range.

“Many listings in a majority of markets — and especially those in lower price ranges — had multiple offers and went under contract quickly because of severely inadequate supply,” Yun said in the report. “This in turn dented affordability and without a doubt priced out a segment of buyers attempting to seek relief from fast-growing rents.”

This problem was also reflected in the affordability index from NAR:

While San Jose may be a bit of an outlier, it certainly reflects just how expensive things are becoming for American homebuyers.

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