NAR: Home Prices, Demand Rise as Low Rates Bring Buyers Off the Sidelines

The median price of a single family homernin the U.S. rose to $186,100 in the third quarter of 2012, 7.6 percent over thernmedian price of $173,000 one year earlier. rnAccording to the National Association of Realtors® (NAR) this was thernstrongest year-over-year price increase since the first quarter of 2006 whenrnthe median price rose 9.4 percent and follows a strong bump of 7.2 percent inrnthe second quarter of 2012.</p

The increases in home prices are alsorngrowing more broad-based.  In the secondrnquarter 110 of the 149 metropolitan statistical areas (MSAs) covered by NAR hadrnincreases, in the third quarter increases were seen in 120 MSAs and three ofrnthe four regions.   </p

Median prices for condominiums andrncooperatives in the 54 MSAs covered by that portion of the NAR survey rose 7.7rnpercent on an annual basis to $180,800. rnThirty-three of the areas had increases and 21 declines.</p

LawrencernYun, NAR chief economist, said the growth in home prices gets down to supplyrnand demand.  “Housing inventories have been gradually trending down from arnrecord set in the summer of 2007,” he said.  “Earlier this year, a broadrnequilibrium began to develop in most areas between home buyers and sellers,rnwhich led to a sustained upturn in home prices.  We expect fairly normalrnappreciation patterns in 2013, but there is a risk of price acceleration ifrnbuilders are unable to increase supply to meet the needs of our growingrnpopulation and households.” </p

NARrnsaid some of the price gain resulted from a smaller share of distressed homernsales in the market, but the higher prices significantly reflect a marketrnrecovery.  Distressed homes – foreclosures and short sales which generallyrnsell at deep discounts – accounted for 23 percent of second quarter sales, downrnfrom 30 percent a year ago.</p

Totalrnexisting-home sales, including single-family homes and condos, rose 3.2 percentrnto a seasonally adjusted annual rate of 4.68 million in the third quarter fromrn4.54 million in the second quarter, and were 10.3 percent higher than the 4.25rnmillion pace during the third quarter of 2011.</p

Atrnthe end of the third quarter 2.32 million existing homes were available forrnsale, which is 20.0 percent below the close of the third quarter of 2011 whenrn2.90 million homes were on the market.  </p

NARrnpresented a separate analysis that shows that, assuming an interest rate of 4rnpercent and that 25 percent of gross income would be devoted to principal andrnincome payments, the typical home buyer had more than enough income to purchaserna median priced single family home in most MSAs.  The national median family income was $61,700rnin the third quarter and to purchase a home at the national median price with 5rnpercent down would require an income of only $40,900 and with 20 percent down,rn$34,400.</p

NARrnPresident Moe Veissi saidrnaffordability conditions are a big factor in rising sales.  “Historically low mortgage interest rates arernencouraging many buyers who were on the sidelines,” he said.  “Sales thisrnyear are notably higher than the levels seen in 2008 through 2011, so we’rernclearly in a recovery phase with rising sales, declining inventory and risingrnprices.  Of course the recovery would be stronger and more stable if werncould return to safe but sensible mortgage underwriting standards.”</p

First-timernbuyers purchased 32 percent of all homes in the third quarter, down from 34rnpercent in the second quarter and 32 percent in the third quarter of 2011.  Investors accounted for 17 percent of salesrncompared to 19 percent in the second quarter and 20 percent a yearrnearlier.  All-cash sales made up 27rnpercent of home sale transactions, down from 29 percent in both the secondrnquarter and the third quarter of 2011. rnAll cash transactions, which are usually investor-related accounted forrn17 percent of sales compared to 19 percent and 20 percent in the two earlierrnperiods.</p

 “The modest decline in first-time buyers andrninvestors shows the impact of limited inventory in the lower price ranges fromrna shrinking share of distressed homes, which are popular with both of theserngroups,” Yun explained.</p

ThernNortheast was the only region where home prices slipped, down 0.3 percent on anrnannual basis to $246,900.  Sales ofrnexisting homes, however, rose 1.7 percent in the third quarter and are 9.8rnpercent above sales one year earlier.  </p

Inrnthe Midwest, existing-home sales rose 5.2 percent in the third quarter and arern17.8 percent higher than in the third quarter of 2011.  The median existing single-family home pricernin the Midwest increased 4.2 percent to $151,100 in the third quarter from thernsame quarter in 2011.</p

Inrnthe South sales rose 5.4 percent quarter-over-quarter and are 11.7 percentrnhigher than in the third quarter of 2011. rnThe median existing single-family home price rose 5.7 percent torn$165,400 in the third quarter from a year earlier.</p

Salesrnslipped in the West by 1.2 percent from the previous quarter primarily becausernof limited supplies but are 2.1 percent higher than a year ago.  With therntight inventory, the median existing single-family home price in the Westrnsurged 20.2 percent to $247,400 in the third quarter from the third quarter ofrn2011.

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