ActivePaper Archive Loan costs erode home affordability - The Dallas Morning News, 2017-02-10

REAL ESTATE

Loan costs erode home affordability

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Higher housing costs will be the hot-button issue for North Texas buyers in 2017.

Several years of double-digit home price increases had already made Dallas-Fort Worth one of the priciest residential markets in the state.

Now, with mortgage costs expected to rise throughout the year, the pinch is even greater for would-be homebuyers.

Dallas is at the top of the list of U.S. cities where home-buyers are running into a lack of housing they can afford, according to the residential marketing firm Trulia.

Home shoppers here are more than twice as likely to find that houses on the market don’t meet their price needs, Trulia research shows.

“The widening gap between listings and searches underscores the difficulty home-buyers face in locating an affordable home they like,” Trulia researchers say.

Dallas is what Trulia calls the most “mismatched” home market in the country, with a lack of starter and trade-up homes. The local market has a larger share of premium-priced houses.

“During the past two years, Dallas, like every other metro on this list with the exception of Houston, has seen inventories decline at a faster rate than the national average, contributing to higher market mismatch,” Trulia says in a new report.

Higher mortgage costs will play a part in the price mismatch this year. Mortgage rates have jumped more than half a percentage point in the last few months.

So far, the rise in finance costs has added about $60 a month to the cost of a $200,000 home loan.

Mortgage rates for longterm loans are expected to top out near 5 percent by the end of the year. That would add another $125 to the monthly payment for that median-priced house.

“The era of ultra-low mortgage rates may be concluded,” said Ted Wilson of the Dallas housing analyst Residential Strategies. “Rising housing prices mean an increasingly smaller percentage of households can afford to purchase a new home.”

Wilson’s numbers show that new-home prices have risen even faster than the cost of existing homes.

In the last decade, the cost of a new house in D-FW has increased 80 percent. Prices of preowned houses have gone up about 65 percent.

At the same time, median incomes have stayed relatively flat when adjusted for inflation.

New homes in North Texas now have a median cost of more than $345,000, and a mid-priced preowned home is $230,000, according to the latest estimates.

The spread between what homes in North Texas cost and what people can afford is growing even wider.

In January, median home sales prices rose another 15 percent compared with a year earlier.

“For people earning less than the median household income, the only inventory out there is on the existing-home side,” Wilson said. “And there is not a lot of that available.”

Twitter: @SteveBrownDMN