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HOME BUYING

New Homes Median Price up 12% at 5-year High; Housing Market Showing Strength

Written By:
June 28, 2013 at 4:26 PM

The housing recovery seems to be in full force. The Commerce Department latest release shows that new home prices have risen to five-year highs. The annualized rate of 476,000 units would be the most constructed since July 2008--just ahead of the housing market collapse later that year. It is 29 percent higher over 2012.

New homes sold for a median price of $ 263,900 in May-- a 3.1 percent decline from April. Monthly price data tend to be more volatile. The year-to-year increase of 10.3 percent provides a more accurate reading of the market.

Builders have also expressed confidence about home sales and foot traffic over the next 180 days, based on the National Association of Home Builders survey.

Existing homes sales data positive

Data from the National Association of Realtors show that existing homes sales climbed 4 percent in May—a pace of 5.18 units million homes,and13 percent on a yearly basis. Foreclosures and short sales (distressed properties) made up 18 percent of all transactions for previously owned real estate. A year ago, 25 percent of total sales in this category consisted of distressed properties.

The median price of previously owned homes climbed 8 percent over April to $208,000—15 straight months of increases, reports the NAR. Since May 2012, the median sales price for existing homes rose 15 percent.

In April, the 20 metropolitan markets tracked by the S&P/Shiller –Case Home Price Index measured a 12.1 percent year over-year gain compared to April 2012. It represents the biggest annual increase in home prices in 7 years. The 2.5 percent price increased from March to April surpassed the record “increase” in the 12-year history of the index, which also track the sales and prices of previously own residences.

Foreclosure and inventory effect

Median home price levels have reached the highest level since 2008. Three factors have contributed to the housing recovery, which has been in force for 11 months:

  1. fewer foreclosures and short sales,
  2. tight housing inventory and
  3. low mortgage interest rates.

A few year ago, foreclosed homes transactions sold at a significant discount to non-distressed homes. With foreclosure transactions and short sales transactions down, and the price gap between foreclosures and market listings having narrowed significantly, there is not as much a drag on home values.

Data influencing the recovery

With the 30-year, fixed-rate mortgage up around 4 percent, compared to 3.35 percent at the beginning of May, some economists have concerns about the recent rash of increases. They believe the hikes will ultimately have a negative impact on the current momentum of the housing market.

Stan Humphries, the chief economist of the real estate website Zillow believes that home price appreciation will level off or fall because “higher prices are no longer masked by rock-bottom mortgage rates."

Lawrence Yun, senior economist for the NAR concurs with Humphries assessment that home prices are growing “too fast.” Yun said that home building activities need to increase by 50 percent and homebuyers need access to easier credit.

The Mortgage Bankers Association (MBA) reports that it is getting easier for consumers to obtain mortgages. The MBA’s Mortgage Credit Availability Index increased 7.2 percent in May from 2012. The index analyzes credit scores, loan type and loan-to-value ratio data from 85 lenders and investors.

Generally, even with higher mortgage cost--home loan rates are still relatively low and homes are very affordable. Consequently, most housing analysts expect the housing recovery-- mortgage refinancing and origination.

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