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Higher home, mortgage prices mean first-time buyers are paying 19 percent more each month

The combination of higher prices and rising home finance costs is causing monthly home purchase costs to spike.

LAS VEGAS — Homebuyers are getting a double whammy.

"Home prices are up and mortgage rates are up," said Frank Nothaft, chief economist with CoreLogic.

Nationwide home prices are almost 7 percent higher than a year ago. And the average long-term mortgage cost has risen by seven tenths of a percentage point interest compared with this time in 2017, according to CoreLogic.

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"That translates into a 16 percent increase in the monthly principal and interest payments to buy the same house," Nothaft told a meeting of the National Association of Real Estate Editors. "Its even much more acute for someone who is a first-time homebuyer."

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Nothaft said the prices on lower-cost homes are rising even faster than the overall market — up almost 9.3 percent year over year — along with higher mortgage rates.

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"That's a 19 percent increase in the principal and interest payment in just one year," he said. "That's the crux of the affordability challenge in the U.S. today."

Average wages around the country are up only 2.5 percent to 3 percent from a year ago, Nothaft said.

"Each passing month as prices rise and mortgage rates rise, it's increasingly challenging for home buyers, especially entry-level homebuyers," he said. "The pinch it takes out of their monthly budget starts to affect more and more buyers across the country."

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Dallas-Fort Worth is one of the markets with record-high home costs. While overall median home prices in North Texas are up about 5 percent so far in 2018, prices for the most affordable houses — under $200,000 — are rising at almost twice that rate.

CoreLogic is forecasting further increases in home prices and interest rates in the year ahead.

"We are expecting mortgage rates to rise another half a percentage [point], over the next 18 months, pushing mortgage rates up to about 5.1 percent at the end of 2019 — the highest in 10 years," Nothaft said.

Home prices are rising to the point that there's a lot more talk about another housing bubble.

CoreLogic surveyed long-term home price trends in 390 U.S. markets.

"What we found in our most recent calculation is that 32 percent of these metros look a little bit overheated — a little bit frothy," Nothaft said. "The last time [it was 32 percent] was 15 years ago, during the in the spring of 2003.

"We know how that story turned out."

D-FW is one of the U.S. markets CoreLogic thinks is overvalued for home prices.

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However, Nothaft doesn't think there is a nationwide price bubble yet.

"But if we continue to see relatively rapid growth of home prices over the next few years, then we might be entering a period when home prices can no longer be sustained," he said. "Whether it's 2020 or 2021 or later, we may very well see that prices come down."

Danielle Hale, chief economist with Realtor.com, said home prices have moved up quicker than she anticipated and sales haven't been as robust as forecast.

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"Inventory is low. Prices are rising," she said. "It is the most competitive homebuying season in recorded history. There are record highs in listing prices."

Hale said buyers in the market for a house know conditions are tough and some of them have been looking for a long time.

"More than three-fourths of the home shoppers in March started their search in 2017 or earlier," she said. "You might think that with all the competition out there, the buyers would give up."

Hale said buyers are looking at smaller houses, shopping different neighborhoods, coming up with more cash for down payments and reworking their budgets to stay in the game.

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"More than 70 percent said they expect to close a home in 2018," she said.

D-FW is one of the more than 30 percent of U.S. metro home markets CoreLogic says is...
D-FW is one of the more than 30 percent of U.S. metro home markets CoreLogic says is overvalued.