What’s Really Driving the Rise in Home Prices?

Property_PricesThe Wall Street Journal recently cited five significant factors behind the rise in home prices, as numerous markets see significant year-over-year gains. The big price drives are:

1. The rise in housing affordability – which is drawing more buyers out into the market who are looking to cash in on low mortgage rates and fallen home prices compared to a few years ago.

2. The rise in household formation – which is expected to hit 1 million new households this year. That is up from an average of 570,000 over the last five years, according to data by Bank of America Merrill Lynch.

3. The rise in rents – which has prompted more investors to purchase properties to rent out and more renters to second-guess why they are paying so much in rent when they could buy.

4. The decline in distressed sales and foreclosures – which has fallen significantly this past year. While distressed sales are still high by historical standards, they have fallen from their peaks in most markets, helping to alleviate the downward pressure on home prices in many areas.

5. Inventories of homes for-sale are at their lowest levels in nearly 50 years – and builders have cut back on construction and many home owners are waiting to sell until they can recover some equity on their properties.

Source: “Five Reasons Home Prices Have Been Rising,” The Wall Street Journal

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Where Asking Prices Are on the Rise the Most

Existing-Home Sales Rise in October with Ongoing Price and Equity Gains

153553389Sales of existing homes increased in October, even with some regional impact from Hurricane Sandy, while home prices continued to rise due to lower levels of inventory supply, according to the National Association of REALTORS®.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 2.1 percent to a seasonally adjusted annual rate of 4.79 million in October from a downwardly revised 4.69 million in September, and are 10.9 percent above the 4.32 million-unit level in October 2011.

Lawrence Yun, NAR chief economist, said there was some impact from Hurricane Sandy. “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,” he said. “We expect an impact on Northeastern home sales in the coming months from a pause and delays in storm-impacted regions.”

The national median existing-home price2 for all housing types was $178,600 in October, which is 11.1 percent above a year ago. This marks eight consecutive monthly year-over-year increases, which last occurred from October 2005 to May 2006.

“Rising home prices have already resulted in a $760 billion growth in home equity during the past year,” 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.”

Distressed homes- foreclosures and short sales sold at deep discounts – accounted for 24 percent of October sales (12 percent were foreclosures and 12 percent were short sales), unchanged from September; they were 28 percent in October 2011. Foreclosures sold for an average discount of 20 percent below market value in October, while short sales were discounted 14 percent.

Total housing inventory at the end of October fell 1.4 percent to 2.14 million existing homes available for sale, which represents a 5.4-month supply at the current sales pace, down from 5.6 months in September, and is 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.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low 3.38 percent in October from 3.47 percent in September; the rate was 4.07 percent in October 2011.

NAR President Gary Thomas says 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,” he said.

“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.”

With stringent mortgage underwriting standards, Thomas said it’s very important to understand credit issues and how credit scores work. “REALTORS® are a good source to learn about lenders with more reasonable terms and ways to increase your likelihood of obtaining safe and sound financing. Buyers can also visit NAR’s consumer website,Houselogic.com [2], and search for ‘credit score.’”

The median time on market was 71 days in October, little changed from 70 days in September, but down 26.0 percent from 96 days in October 2011. Thirty-two percent of homes sold in October were on the market for less than a month, while 20 percent were on the market for six months or longer.

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.

Single-family home sales rose 1.9 percent to a seasonally adjusted annual rate of 4.22 million in October from 4.14 million in September, and are 9.6 percent above the 3.85 million-unit pace in October 2011. The median existing single-family home price was $178,700 in October, which is 10.9 percent higher than a year ago.

Existing condominium and co-op sales rose 3.6 percent to a seasonally adjusted annual rate of 570,000 in October from 550,000 in September, and are 21.3 percent above the 470,000-unit level a year ago. The median existing condo price was $177,500 in October, up 11.7 percent from October 2011.

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.

For more information, visit www.realtor.org

Falling Foreclosures Pushing Up Home Prices

house-arrowupAs foreclosure backlogs have decreased, so have many of the big discounts on home prices. The slowdown in foreclosures is partially behind the recent rise in home prices, some economists say.

“Deeply discounted existing homes have been subject to strong demand from cash buyers and investors looking to lock into housing’s attractive income returns,” says Paul Diggle, a housing economist at Capital Economics. “The supply of such homes, meanwhile, has been dwindling. That has bid up existing house prices, particularly at the lower end of the price spectrum."

The median price of existing homes nationwide was 9.5 higher in August compared to a year ago, and new home prices were up 17 percent in that same time period.

Distressed properties typically sell for big discounts. For example, in 2007 during a nationwide foreclosure surge, foreclosures tended to sell for about a third of the median price of the home. The housing markets with some of the largest price falls tended to have the highest number of distressed home sales.

Lately, foreclosures have been posting big drops. Last month, new foreclosure filings reached a five-year low, according to RealtyTrac, a real estate research firm that tracks foreclosure housing data.

“There is a shortage of inventory — as crazy as it sounds to say that,” says Daren Blomquist, a RealtyTrac spokesman. “In a lot of market there’s less inventory of foreclosed properties than there is demand. You’re hearing about multiple bids for these properties.”

Source: “Foreclosure Slowdown Pushing Home Prices Higher,” NBC News

Cycle of Foreclosure about to be Broken? [INFOGRAPHIC]


House Prices: Annual Appreciation for Last 25 Years


Are Appraisers ‘Scared’ to Report Rising Prices?

ScaredReal estate professionals and mortgage loan officers say that appraisers seem to be reluctant to report price appreciation occurring in numerous spots across the nation, and it’s complicating sales transactions, The Real Deal reports.

Appraisal problems — where property valuations have come in lower than the agreed-upon sales price — have been an ongoing problem in derailing many real estate transactions the last few years. And despite reports of several markets seeing an increase in their home prices, many agents report that appraisals continue to be a sticking point.

Thirty-three percent of real estate professionals say they are continuing to face appraisal problems, according to a survey conducted by the National Association of REALTORS® in May.

Low appraisals “in markets that are no longer in decline is the single most important” valuation obstacle to “seeing a real recovery,” NAR President Moe Veissi says.

Appraisers may be being overly cautious, not wanting to be accused of potentially overvaluing properties, says Frank Gregoire, an appraiser based in St. Petersburg, Fla., and also a former chair of the Florida Real Estate Appraisal Board. Gregoire told The Real Deal that appraisers fear they may expose lenders to future lawsuits or high-cost “buy-back” demands by Fannie Mae and Freddie Mac.

“Appraisers are scared to death” to report rising values, Joseph Petrowsky, owner of the mortgage company Right Trac Financial Group Inc. in Manchester, Conn., told The Real Deal. Petrowsky says the appraisals aren’t reflecting the pick-up in some markets, in which some properties have even seen bidding wars.

Dennis Smith, co-owner of Stratis Financial Corp., recalls a bidding war recently in which four buyer offers took the contract price from $350,000 to $375,000, but the appraisal valuation still came in lower the contract price.

Nevertheless, the Appraisal Institute insists that appraisers aren’t discounting price appreciation in markets. Appraisers have a professional duty to arrive at valuations that “reflect the market,” whether positive or negative, and also reflect the most recent data, says Sara W. Stephens, president of the Appraisal Institute.

Source: "Appraisers ‘Scared to Death’ to Report Rising Prices," The Real Deal

More Americans Expect Home Prices to Rise

parkland-real-estate-valuesMore Americans are optimistic that home prices will inch up over the next year, with expectations that prices will rise at least 1.4 percent in that timeframe. That marks the highest amount ever recorded in Fannie Mae’s monthly National Housing Survey.

Thirty-four percent — also the highest ever recorded — of the 1,000 respondents in the May housing survey say they expect to see a boost in home prices in the next year. Forty-one percent say they think mortgage rates also will rise over the next year.

“Both indicators suggest the potential that consumers may consider moving off the sidelines to purchase a home,” according to the survey. 

Survey respondents also say they expect rental prices to continue to edge up over next year, projecting a 4.1 percent increase in that period.

Still, a slowdown in the pace of new jobs and income growth is creating a plateau in consumer sentiment that might delay a full recovery in the housing market, according to Fannie Mae’s survey. Fifteen percent of those surveyed reported that their household income is significantly lower than it was 12 months ago, which marks a record low in the annual survey.

"Our May consumer data show that Americans are taking a ‘wait and see’ approach about buying or selling a home,” says Doug Duncan, Fannie Mae’s chief economist. “This is not surprising given their assessment that their income during the past 12 months and their personal financial expectation for the next 12 have leveled off. … Current jobs data are reminiscent of the spring slowdown that continued into the summer months during the last two years. If this pattern continues, we do not expect to see any significant upturn in consumer sentiment during the summer and a meaningful housing recovery likely will be delayed once again."

Source: Fannie Mae and “Americans Expect 1.4% Increase in Home Prices: Fannie Mae,” HousingWire

Home Affordability Pushed Higher as Rates Fall

affordabilityFor the fifth week, fixed-rate mortgages reached new all-time lows. The 15-year fixed-rate mortgage dipped below 3 percent, settling into uncharted territory, according to Freddie Mac’s weekly mortgage market survey. Thirty-year fixed-rate mortgages also reached new record lows, continuing to stay under 4 percent and pushing home buyer affordability even higher.

“Compared to a year ago, rates on 30-year fixed mortgage rates are almost 0.9 percentage points lower, which translates into nearly $1,200 less in annual payments on a $200,000 loan,” says Frank Nothaft, Freddie Mac’s chief economist.

Here’s a closer look at rates for the week ending May 31.

  • 30-year fixed-rate mortgages: averaged 3.75 percent, with an average 0.8 point, dropping from last week’s previous all-time low of 3.78 percent. A year ago, 30-year rates averaged 4.55 percent. 
  • 15-year fixed-rate mortgages: averaged 2.97 percent, with an average 0.7 point, dropping from last week’s previous record low of 3.04 percent. Last year at this time, 15-year rates averaged 3.74 percent. 
  • 5-year adjustable-rate mortgages: averaged 2.84 percent, with an average 0.6 point, rising slightly from last week’s 2.83 percent average. A year ago at this time, 5-year ARMs averaged 3.41 percent. 
  • 1-year ARMs: averaged 2.75 percent, with an average 0.4 point, holding steady at last week’s average. A year ago, 1-year ARMs averaged 3.13 percent.

Source: Freddie Mac

Where Are House Prices Actually Headed?

We are often asked where we believe home values are headed. To answer this question we want to quote three separate reports that have been published in the last 60 days: the Home Price Expectations Survey (HPES), the Urban Land Institute Real Estate Consensus Forecast (ULI) and the Demand Institute’s Report (DIR): The Shifting Nature of U.S. Housing Demand. Here are their projections: