Shrinking inventory is putting upward pressure on median home prices – and affecting housing affordability.

By Peter Ricci

Housing affordability was one of the hidden jewels of the post-boom housing market, as falling home prices offered prospective buyers one of the best opportunities in decades to enjoy the benefits of homeownership.

As the latest quarterly report from the National Association of Realtors shows, though, falling housing inventory levels nationwide have led to rising home prices across the nation, stalling the housing market’s continued trend towards greater and greater home affordability.

Shrinking Inventory = Higher Home Prices, Less Housing Affordability

Indeed, housing inventory was down nearly 25 percent year-over-year in 2012’s second quarter, and as we’ve reported before, such declines put upward pressure on prices and affect housing affordability. NAR reported:

• The median home price for existing single-family residences rose year-over-year in 110 of 147 metro areas in the second quarter of 2012.
• That’s a big jump from 2012’s first quarter, when 74 areas showed similar price increases, and an even bigger increase from the second quarter of 2011, when just 41 showed price gains.
• Overall, the median single-family home price was $181,500 percent in the second quarter, up 7.3 percent from 2011’s second quarter and the strongest YOY increase since the first quarter of 2006.

NAHB Housing Opportunity Index

The National Association of Homebuilders (NAHB) also got in on the housing affordability party, releasing its lastest Housing Opportunity Index this week. It’s findings were:

• 73.8 percent of all new and existing-home sales in the second quarter were affordable to families earning the national median income (set at $65,000).
• That’s down from 77.5 percent in the first quarter, and the NAHB, like NAR, chalked it up to rising prices, which increased in the second quarter for 92 percent of the metros it studied.

Of course, the slight dip in housing affordability is not a bad thing, but an opportunity for agents, as NAHB Chairman Barry Rutenberg highlighted in comments accompanying the HOI report.

“The decline in the latest HOI is a positive development because it is another signal that the housing recovery is starting to take root,” he said, “and it lends needed confidence to prospective buyers and sellers who have been reluctant to move forward in the current marketplace.”

That reluctance, as many agents know, has contributed to a substantial pent-up demand for real estate, and now that the irregular market conditions of the post-boom marketplace seem to be waning, it could be enough to motivate buyers and sellers to enter the market.