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Despite mortgage rates around 7% and declining sales, 98% of metro markets experienced home price gains in the third quarter, according to the National Association of Realtors' latest quarterly report. Of the 185 tracked metro areas, 46% reported double-digit price increases, down from 80% in the second quarter of 2022.

The report reveals that the South registered the largest share of single-family existing-home sales (44%) and the greatest year-over-year price appreciation (11.9%) for the third quarter. The Northeast’s prices elevated 8.2%, while the West elevated 7.4% and the Midwest rose 6.6%.

According to the NAR, the top 10 metro areas with the largest year-over-year price increases all recorded gains greater than 18%. Seven of the 10 markets are in Florida. The areas include North Port-Sarasota-Bradenton, Florida, 23.8%; Lakeland-Winter Haven, Florida, 21.2%; Myrtle Beach-Conway-North Myrtle Beach, South Carolina-North Carolina, 21.1%; Panama City, Florida, 20.5%; Deltona-Daytona Beach-Ormond Beach, Florida,19.6%; Port St. Lucie, Florida, 19.4%; Greenville-Anderson-Mauldin, South Carolina, 18.9%; Kingsport-Bristol-Bristol, Tennessee-Virginia, 18.8%; Tampa-St. Petersburg-Clearwater, Florida, 18.8%; and Ocala, Florida, 18.8%.

Five of the top 10 most expensive markets were in California, including San Jose-Sunnyvale-Santa Clara, California, $1,688,000, 2.3%; San Francisco-Oakland-Hayward, California, $1,300,000, -3.7%; Anaheim-Santa Ana-Irvine, California, $1,200,000, 9.1%; Urban Honolulu, Hawaii, $1,127,400, 7.6%; San Diego-Carlsbad, California, $900,000; 5.9%; Los Angeles-Long Beach-Glendale, California, $893,200, 3.8%; Boulder, Colorado, $826,900, 7.5%; Naples-Immokalee-Marco Island, Florida, $746,600, 16.7%; Seattle-Tacoma-Bellevue, Washington, $741,300, 4.6%; and Boston-Cambridge-Newton, Massachusetts-New Hampshire, $698,900, 6.2%.

"The more expensive markets on the West Coast will likely experience some price declines following this rapid price appreciation, which is the result of many years of limited home building," says NAR chief economist Lawrence Yun. "The Midwest, with relatively affordable home prices, will likely continue to see price gains as incomes and rents both rise."

Although the year-over-year price appreciation has decelerated when compared with the 14.2% in the previous quarter, the national median single-family existing-home price climbed 8.6% to $398,500 from a year ago. "Much lower buying capacity has slowed home price growth, and the trend will continue until mortgage rates stop rising," adds Yun. "The median income needed to buy a typical home has risen to $88,300—that's almost $40,000 more than it was prior to the start of the pandemic, back in 2019."

The NAR says that stubbornly high home prices and increasing mortgage rates reduced housing affordability in the third quarter. For a typical existing single-family home with a 20% down payment, the monthly mortgage payment was $1,840, which represents a marginal increase from the second quarter ($1,837), but a significant jump of $614 (or 50%) from one year ago.

Down from 25.3% in the prior quarter, but up from 17.2% one year ago, families typically spent 25% of their income on mortgage payments. A mortgage is considered unaffordable if the monthly payment (principal and interest) amounts to more than 25% of the family's income, the NAR reports. However, first-time buyers typically spent 37.8% of their family income on mortgage payments, up from 36.8% in the previous quarter.

During the third quarter, first-time buyers looking to purchase a typical home continued to feel the impact of housing's growing unaffordability. For a typical starter home valued at $338,700 with a 10% down payment loan, the monthly mortgage payment rose to $1,808, close to the previous quarter ($1,807), but an increase of almost $600, or 49%, from one year ago ($1,210).

Up from 53 in the prior quarter, in 59 markets a family needed a qualifying income of at least $100,000 to afford a 10% down payment mortgage. Yet, down from 23 in the previous quarter, a family needed a qualifying income of less than $50,000 to afford a home in 17 markets.

Yun states, "A return to a normal spread between the government borrowing rate and the home purchase borrowing rate will bring the 30-year mortgage rates down to around 6%. The usual spread between the 10-year Treasury yield and the 30-year mortgage rate is between 150 to 200 basis points, rather than the current spread of 300 basis points."