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Home Prices and Sales Affected by Low Inventory

Written By:
January 23, 2013 at 1:38 PM

Home Prices Increase in 2012

The housing industry has been a major source of good economic news lately after five years of poor performance. Home values have appreciated across the country for five straight quarters through December 2012. Last year, home prices rose nearly 6 percent, which is twice the historical average. The average home price appreciation for a single year is 3 percent.

Stan Humphries the chief economist for the real estate website Zillow, warns home owners to not expect the same rate of home value appreciation in 2013. Humphries states that he anticipates the market will slow to a more “sustainable pace. In 2013, “home prices will increase an average of 3.3 percent across the U.S., according to Zillow.

Out of the 366 metropolitan areas measured by Zillow, 254 or 69% of the market realized price gains. Declining inventory and strong demand have been the main factors driving home values up.

Other Housing Metrics

The S&P Case-Shiller Home Price Index shows that home prices moved up 9 percent since March when the indicator touched a 10-year low. The 4.3 percent increase in home prices in October represented the biggest year-over-year gain since May 2010.

On Tuesday, the National Association of Realtors (NAR) reported that existing home sales increased 9.2 percent or 4.92 million units. The median home price also increased by 11.5 percent or $180,800 for December 2012. In December 2011, median home price was $162,000.

Economists participating in the Bloomberg survey expect home sales to climb 7.2 percent or 4.98 million-- the highest increase since 2007. The poll also has home prices appreciating 3.3 percent.

Existing-Home Inventory Low

Personal home buyers and real estate investor are competing with one for starter homes and other properties in desirable locations. NAR data shows that the supply of homes is 21.6 percent lower compared to last year. Inventory has declined to 1.82 million – the fewest since January 2001.

In November, it inventory would take 4.8 months to sell. Currently, it would take 4.4 months, the shortest time frame since May 2005, to exhaust the inventory.

Fewer foreclosures have also contributed to the inventory shortage. In December 2011, distressed home sales, which consist of foreclosed homes and short sales, comprised 24 percent of the sales market compared to 32 percent in 2011.

Housing Market in 2013

More potential buyers have entered the market. Lawrence Yun, the chief economist of the NAR states that historic low mortgage interest rates continue to help potential home buyers. However, home sales have been limited by “tight inventory and restrictive mortgage underwriting standards,” says

Nonetheless, NAR forecasts the housing market to continue its recovery and momentum. “Likely job creation and household formation will continue to fuel that growth. Both sales and prices will again be higher in 2013," says Yun.

Homeowners who plan to complete a mortgage refinance can still take advantage of extremely low mortgage interest rates. The 30-year fixed rate mortgage averages around 3.38 percent. The lowest rate since Fannie Mac began keeping records in 1972 is 3.31 percent.

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