Rising prices are holding back some potential sellers from listing their properties because they fear they won't find an affordable replacement, according to First American Financial Corp.
First American's Real Home Price Index, which takes home prices and then adjusts them for income and interest rates, rose 0.7% during March to 91. It is 11.5% higher when compared with March 2016.
A consumer's purchase power fell by 0.4% in March compared with February. Purchase power measures how much home a consumer can afford based on income and interest rate.
"The supply in most markets is insufficient for this spring's strong demand," said First American Chief Economist Mark Fleming in a press release. "The market faces a 'prisoner's dilemma.' If everyone sells, the supply squeeze would ease. However, homeowners may not be putting their homes on the market because they're wary of the risk of selling when others don't — the inability to find another home to purchase at the right price."
There was an annualized increase in income of 2.7% in March, partially offsetting higher mortgage rates and rising home prices.
Unadjusted home prices rose by 5.8% during the month and were 2.4% higher than they were during the housing boom peak in 2007.
But March's RHPI was 32.5% below its July 2006 level, the peak month during the housing boom.