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It’s a seller’s market but are homes still affordable?

U.S. home prices saw a 5.8% year-over-year increase in November, according to Tuesday’s S&P/Case-Shiller 20-city composite.

“The housing market continues to see a strong recovery. Recovery is stronger than the historical trend, and a lot of that is driven by strong job growth numbers,” says Stan Humphries, chief economist and head of analytics at Zillow Group. In August 2013 the same 20-city composite posted a 12.1% increase year-over-year. Despite this report’s robust numbers, current figures are a far from those highs.

“Home prices were really appreciating too quickly back then and that’s bad for the housing market because it risks reinflating another housing bubble. So we’re happy to see lower gains, but they’re still very robust -- you have to compare that to the historical average where home prices rise about 2% to 4% a year,” says Humphries.

We may be in a seller’s market but would not want to have one at the buyer’s expense. Humphries notes that there’s a common misbelief that home prices should appreciate to their maximum. In reality, however, this only benefits owners and can lock out buyers from the housing market entirely.

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The more holistic S&P/Case-Shiller Home Price Index, which covers the entire country, rose 5.3% in the 12 months ended November, compared with October’s increase of 5.1%.

Currently, buyers are spending about 15% of their monthly income on their mortgage payments, which is much lower than the historical average of 21.3%, according to Zillow.

Still, housing affordability remains uneven across the U.S. Inevitably, hot markets like New York City continue to appreciate in price and inhibit buyers from purchasing property.

Specifically citing California’s Bay Area, Los Angeles and San Diego as regions where homebuyers are paying on par with historical levels, if not more, Humphries noted big discrepancies in home affordability.

Additionally, renters are reluctant to make the commitment to buy. Only 32% of all purchasers in 2015 were first-time homebuyers, which marks the third straight yearly decline and the lowest percentage since 1987.

As millennials put off marriage and having kids, they have less need to buy a home. They’re now starting to “move into home buying in earnest, but a lot of them are still renting,” says Humphries.

And despite sticker shock-inducing rentals, the rise in prices is expected to slow. Zillow forecasts a 1.1% annual increase in rents by the end of 2016, which would be sharply down from 4.5% at the end of 2015. One reason for that, Humphries says, is more inventory coming onto market.

Ultimately, as more renters put buying on the backburner, the first-time homebuyer market will continue to shrivel. “This does have implications for the purchase side because high rents make it harder for you to save for a down payment, and eventually transition to homeownership,” says Humphries.