Arch MI report calls prices to keep rising
First time buyers may not see any relief in current conditions in the US housing market until at least the start of the next decade.
According to a report from mortgage insurer Arch MI, the average probability of home prices in 2020 being lower than they are now is just 5%.
The firm’s quarterly Housing and Mortgage Market Review says that with strong demand but below-normal levels of construction, there is a 95% chance that prices will rise over the next two years – and this is likely to be more pronounced at the lower end of the market.
“Fewer people are selling starter homes to trade up to bigger houses, and that’s a trend that will continue now that the majority of homeowners have lower mortgage rates than they could get on a new loan,” said Dr. Ralph G. DeFranco, Global Chief Economist for Arch Capital Services, Inc.
He noted that millions of entry-level homes were converted from owner-occupied to investor-owned rentals during the foreclosure crisis, while builders are focusing on larger, more expensive homes due to higher costs.
“With fewer new starter homes, the most likely scenario is continued, rapid price growth of existing homes, particularly at the lower end of the market,” he said.
The states with the highest risk of having lower home prices in two years are Alaska at 27%, followed by West Virginia at 22%. Among larger metros, Houston, Texas (22%) and San Antonio, Texas (16%) are the riskiest because their home prices are far higher than expected compared to the historical relationship between prices and incomes.
