There’s no doubting the housing market’s recovery. Although uneven at times, home prices are rising, home supplies are falling, and competition for “right-priced” homes is hot. Ask any active home buyer and they’ll tell you — it’s tough out there.
Unfortunately, the 2013 housing market doesn’t figure to get much easier. The 2012 year-end market may be the best that buyers get.
18% Drop In The National Housing Inventory
Each month, the National Association of REALTORS® releases its Existing Home Sales report, a detailed look at home resales nationwide and their overall composition.
The Existing Home Sales report includes obvious data such as total homes sold in the month prior; and, existing home inventory nationwide. It also reports on more granular data such as percentage of buyers paying all-cash for a home; and, percentage of buyers buying a home in some form of short sale of foreclosure.
4.82 million homes were sold in August on a seasonally-adjusted, annualized basis, according to the NAR report — a 9 percent increase from August 2011.
By itself, this statistic is impressive. However, when considered in context with the 18 percent drop in the national home resale inventory, it’s astounding. You’ve noticed that multiple-offer situations are increasingly common this year. It’s because loads more buyers are chasing far fewer homes.
When demand outweighs supply, home prices are rise. And that’s exactly what we’re seeing. Prices should rise into 2013, too.
Chain Reaction : 2008-2010 Homebuyer Tax Credits
4 years ago, Congress launched its first housing market stimulus plan, aimed at first-time buyers. In offering a tax credit to people who had not owned a home in the prior three years, the government hoped to spur home sales and slow a rising foreclosure tide as investors went bust.
Around the same time, Fannie Mae launched its 5-10 Properties program, a mortgage program meant to help “bona fide investors” get access to mortgages. The goal of the 5-10 Properties program was the same as with the tax credits — spur home sales and provide a floor to the national housing market.
The government left its home buyer tax credit program in place until April 2010 and home sales remained brisk while the program was active. Even today, April 2010 remains the high-point for most housing data including Existing Home Sales, New Home Sales and the Pending Home Sales Index.
The tax credit programs were a real success for housing and the economy.
Move-Up Buyers Moving Into “Jumbo” Price Points
Prior to the federal tax credit programs, homeowners were, literally, unable to move even if they wanted to.
Mortgage lenders had toughened up on applicants with mortgages for two homes at the same time so, unless they could sell their home, existing homeowners were often trapped where they lived. But where would they find a buyer?
Furthermore, home prices dropped with each passing month, which decreased the equity each existing homeowner held. It was a bad situation.
And then the tax credit program passed.
Suddenly, the market was teeming with new buyers eager to take advantage of falling home prices and a generous federal tax credit. And, as these buyers bought purchased homes, they “freed” the existing homeowner to purchase its next home. This sparked a housing chain reaction which continues to drive home sales today.
Move-up buyers could finally move up and they’re actually doing it. As compared to last year, the mix of home sales has moved toward higher-priced homes as the tax credits of last decade continue to work through the system.
- Sales under $100,000 : -5.0% from one year ago
- Sales between $100-250,000 : +12.4% from one year ago
- Sales between $250-500,000 : +25.1% from one year ago
- Sales between $500-750,000 : +23.9% from one year ago
- Sales between $750,000-$1,000,000 : +19.0% from one year ago
- Sales over $1,000,000 : +24.9%% from one year ago
In August 2012, move-up buyers accounted for more than 50% of all home buyers — nearly double the percentage from three years ago.
Low- And No-Downpayment Programs For Buyers
Another big boost for today’s move-up buyers is the widespread availability of low- and no-downpayment mortgage programs. The FHA allows for a 3.5% downpayment and VA loans permit 100% financing. Both loan type remain popular — especially among homeowners whose existing homes have lost equity.
Plus, both allow loan sizes of up to $729,750 in certain high-cost areas including San Diego and most of California; Potomac and Bethesda, Maryland; and most of Northern Virginia, too, including Loudoun County and Alexandria.
Even jumbo loans are getting loose. There are now 10% downpayment programs for loans in excess of local conforming loan limits. This wasn’t possible just 12 months ago.