Inventory levels are now at February 2006 levels, and price increase pace now matches pre-recession improvements. Housing is showing signs of health, but the road to recovery depends highly on fiscal cliff negotiations and mortgage lending standards.
Home prices continue ticking up, sales rise
According to the National Association of Realtors (NAR), sales of existing homes increased in October, despite Hurricane Sandy throwing off the coastal market, and despite continued tight inventory levels, and even despite home prices continue to rise. Completed real estate transactions rose 2.1 percent in October from September, and are up 10.9 percent from October 2011.
Dr. Lawrence Yun, NAR’s Chief Economist said, “Home sales continue to trend up and most October transactions were completed by the time the storm hit, but the growing demand with limited inventory is pressuring home prices in much of the country. We expect an impact on Northeastern home sales in the coming months from a pause and delays in storm-impacted regions.”
Median home price in America
The national median existing-home price rose 11.1 percent from October 2011, hitting $178,600 last month, the most recent month of reporting for this lagging economic indicator. Prices have now experienced eight consecutive monthly year-over-year increases, which has not happened since October 2005 to May 2006.
“Rising home prices have already resulted in a $760 billion growth in home equity during the past year,” Dr. Yun said. “Given that each percentage point of price appreciation translates into an additional $190 billion in home equity, we could see close to a $1 trillion gain next year.”
Housing inventory, time on market
Total housing inventory at the end of October fell 1.4 percent to 2.14 million existing homes available for sale, representing a 5.4-month supply at the current sales pace, down from 5.6 months in September, marking the lowest housing supply since February of 2006 when it was 5.2 months. Listed inventory is 21.9 percent below a year ago when there was a 7.6-month supply.
The median time on market nationally was 71 days in October, up one day from September, but down 26.0 percent from 96 days in October 2011. One in three homes sold in October were on the market for less than a month, while one in five closings had spent six months or more on the market.
Foreclosure discounts, cash buyers
Distressed homes accounted for 24 percent of October sales (12 percent were foreclosures and 12 percent were short sales), unchanged from September, selling for an average discount of 20 percent below market value in October, while short sales were discounted 14 percent.
First-time buyers accounted for 31 percent of purchases in October, compared with 32 percent in September and 34 percent in October 2011. All-cash sales were at 29 percent of transactions in October, up slightly from 28 percent in September; they were 29 percent in October 2011. Investors, who account for most cash sales, purchased 20 percent of homes in October, up from 18 percent in September; they were 18 percent in October 2011.
When will mortgage rates rise?
NAR President Gary Thomas, broker-owner of Evergreen Realty in Villa Park, Calif., said record low mortgage interest rates shouldn’t be taken for granted. “Even with rising home prices, we’ll continue to see favorable housing affordability conditions over the coming year, but they won’t last forever.”
“Inflationary pressures are expected to build during the next two years. As a result, mortgage interest rates will also rise with inflation. Buyers who are currently held back by tight mortgage credit standards should work to improve their credit scores so they’ll be able to qualify for a mortgage while conditions are still favorable.”
Regional performance varied
Regionally, existing-home sales in the Northeast fell 1.7 percent to an annual pace of 580,000 in October but are 13.7 percent above October 2011. The median price in the Northeast was $232,600, which is 4.6 percent above a year ago.
Existing-home sales in the Midwest rose 1.8 percent in October to a level of 1.11 million and are 18.1 percent above a year ago. The median price in the Midwest was $145,600, up 10.6 percent from October 2011.
In the South, existing-home sales increased 2.1 percent to an annual pace of 1.92 million in October and are 11.0 percent higher than October 2011. The median price in the South was $152,200, which is 8.2 percent above a year ago.
Existing-home sales in the West rose 4.4 percent to an annual level of 1.18 million in October and are 3.5 percent above a year ago. With much tighter inventory conditions, the median price in the West was $242,100, up 21.2 percent from October 2011.