Housing prices hit an all-time high this week of $440,660, but the good news is that price increases over the last year have slowed. In the last 12 months, the national median existing-home prices increased 1.8%. While this is still an annual increase, it is a vast improvement over 2021-2022, when the median sales price increased 13-16% year over year.
Home prices increasing less than 2% over the last year signals an improvement in affordability. Over the same time period, real average hourly earnings in the U.S. have increased 3.5%. As earnings outpace housing price increases, the housing market is also turning towards a buyer’s market. The total housing inventory is up 1.3% from last year, while sales have decreased 2.4% month over month. The median time on the market is 28 days, up from 27 days last year. Buyers have more power in the housing market as sellers become more desperate to sell. Because there are more homes on the market, sellers need to reduce their listing prices. In fact, the median listing price is down 2.5% from last year.
Wealthy Coastal Buyers Drive Averages High
Although the median listing price is lower, the median sale price of existing homes is being driven up by wealthy buyers in the West and in the Northeast. Cities such as San Francisco are skewing national numbers higher, while the South and Midwest have median prices under $380,000.
First-time buyers and average move-up buyers are still being priced out of the housing market, even as affordability improves. With mortgage rates hovering around 6.5%, the monthly payments to maintain a mortgage are out of range for many Americans. Households need an annual income of nearly $117,000 to afford the average home. With a national median household income of $83,730, the housing market needs a higher supply of affordable single-family homes.
New Policies Will Expand Supply
Fortunately, policymakers are making progress on making housing affordable. Recently, the 21st Century ROAD to Housing Act became law after passing both the U.S. House and Senate. This legislation would bring much-needed deregulation to the housing market, helping lower home prices.
By removing regulatory barriers and encouraging zoning reforms, the bipartisan legislation helps homebuilders get more homes on the market. Builders would be able to obtain permits faster with pre-approved home designs and streamlined housing processes. Further, the 21st Century ROAD to Housing Act updates rules for manufactured homes and exempts small-scale housing developments from burdensome federal regulations. In passing this bill, Congress adopted one of our recommendations in the housing chapter of the Reclaiming Affordability Report. These deregulations will usher more homes onto the market, allowing first-time homebuyers a chance to afford a home.
Policymakers need to maintain the momentum on housing affordability by giving sellers a break on capital gains tax. As home prices have increased so much in the last several years, the exemption for property sales under the capital gains tax no longer covers sellers in the current market. By indexing the capital gains tax to inflation, more sellers would be motivated to sell their homes without the fear of a burdensome capital gains tax.
Bottom Line
Policymakers are gaining headway on housing affordability. The 21st Century ROAD to Housing Act makes great progress on deregulating burdensome housing policy, but Congress can still do more to provide relief for American homebuyers.