Buyers snapped up more than 4,000 single-family homes in Massachusetts last month, pushing the number of statewide sales for the first 10 months of 2012 above the total for all of last year.
Warren Group, a Boston real estate tracking company, reported Tuesday that home sales in October increased by 21 percent, to 4,044, compared with the same month last year, reflecting increased optimism about the state’s housing market.
Sales between January and October rose to 39,491, a 22 percent increase compared with those months in 2011.
“Record low mortgage rates, an improved economy, and growing consumer confidence are boosting the housing market in Massachusetts and around the country,” said Timothy M. Warren Jr., Warren Group’s chief executive.
The median home price remained relatively flat, however. For a single- family home, it held at $270,000 in October, similar to 12 months earlier, Warren Group said.
Between January and October, the median value slipped to $287,500, down nearly 1 percent compared with October 2011. That means half the properties sold above that price and half sold for less.
The state’s condominium market fared slightly better.
Condo sales were up 48.8 percent in October, compared with the same time last year. The median price rose to $255,000, less than 1 percent higher than October 2011.
Between January and October, the median price for condos went up slightly to $275,000, less than 1 percent higher than a year earlier.
The Massachusetts Association of Realtors, which also released data on Tuesday, offered slightly better housing numbers.
The association said that the median value of a single-family home increased modestly in October to $287,000, 4.4 percent above the October 2011 median.
The median condo price rose to $265,000, up 2 percent compared with that month last year.
The association tracks data from three affiliated listing services, while Warren Group bases its numbers on sales filed at registries of deeds.
As more prospective buyers took action, the number of available homes continued to drop.The inventory of single-family homes decreased by 23.5 percent in October 2012, compared with the same month last year, and the number of condos for sale declined by 32.2 percent, compared with October, 2011, the association said.
John Ranco, a senior sales associate with Hammond Residential Real Estate, said he hopes more people list their homes for sale in the new year, in anticipation of the traditionally busy spring selling season. Right now, Ranco said, many buyers remain frustrated.
“There is very little to choose from,” he said.
Housing numbers released Tuesday by the S&P/Case-Shiller Home Price Indices showed Boston-area home prices increased by 1.9 percent in September, compared with that month last year.
Nationwide, home values rose about 3.6 percent in September, compared with 2011, according to the index, which measures repeat sales of the same properties and is considered one of the best measures of the nation’s housing market.
David M. Blitzer, chairman of the index committee at S&P Dow Jones Indices, said the latest figures provide further evidence that the housing market is ascending.
“With six months of consistently rising home prices, it is safe to say that we are now in the midst of a recovery in the housing market,’’ Blitzer said.
In the real estate community the off-season months are a time to regroup for the New Year, and to tie up the lose ends of the very busy year we have had. Interestingly the months between November and February remain active in many ways. Buyers are are able to see properties without worrying about tenants, traffic and the urge to go to the beach. Those buying now can be in their properties for the summer season or have their property ready for renters. Sellers can prepare their properties for the new selling season. Renovations can be completed, and property owners can enjoy their hones for the holiday season.
The Goode and Farmer Q3 report reported crazy strong numbers as condo sales increased 50% YTD and single family sales increased by 100%. In October the strong trend continued as 11 condos sold with an average sales price of $423K, and 5 single-family homes sold with an average sales price of $1.107M. There are currently 122 condos on the market, vs 134 just a month ago, and 59 single family homes vs 72 a month ago.
Interesting fact. 32% of all condos sold last year sold in the 4th quarter, and 38% of all single family homes sold in the 4th quarter. Another very strong indication that the so called off season is really still the “on season” and that while things do slow down off season they certainly don’t come to a halt in real estate.
According to the latest quarterly report by the National Association of Realtors, growth in metropolitan area median home prices increased in the third quarter, and more areas are showing gains. The median existing single-family home price rose in 120 out of 149 metropolitan statistical areas (MSAs) based on closings in the third quarter compared with same quarter in 2011, while 29 areas had price declines, up from 110 areas with annual improvement in the second quarter. In the third quarter of 2011, only 39 metros improved, marking stronger home increases.
Dr. Lawrence Yun, NAR’s Chief Economist, said in a statement, “Housing inventories have been gradually trending down from a record set in the summer of 2007,” he said. “Earlier this year, a broad equilibrium began to develop in most areas between home buyers and sellers, which led to a sustained upturn in home prices. We expect fairly normal appreciation patterns in 2013, but there is a risk of price acceleration if builders are unable to increase supply to meet the needs of our growing population and household formation.”
The national median existing single-family home price was $186,100 in the third quarter, up 7.6 percent from $173,000 in the third quarter of 2011, which is the strongest year-over-year price increase since the first quarter of 2006 when the median price rose 9.4 percent. In the second quarter the price increased 7.2 percent from a year earlier.
The median price is where half of the homes sold for more and half sold for less; medians are more typical than average prices, which are skewed higher by a relatively small share of upper-end transactions.
Some of the price gain resulted from a smaller share of distressed home sales in the market, but the higher prices significantly reflect a market recovery. Distressed homes accounted for 23 percent of second quarter sales, down from 30 percent a year ago.
A separate breakout of income requirements to buy a home on a metro area basis shows buyers in the vast majority of areas had ample income in the third quarter, assuming they could meet stringent mortgage credit standards.
Total existing home sales rose 3.2 percent
Total existing-home sales rose 3.2 percent to 4.68 million in the third quarter from 4.54 million in the second quarter, and were 10.3 percent higher than the 4.25 million pace during the third quarter of 2011. At the end of the third quarter, 2.32 million existing homes were available for sale, which is 20.0 percent below the close of the third quarter of 2011 when 2.90 million homes were on the market.
According to Freddie Mac, the national commitment rate on a 30-year conventional fixed-rate mortgage averaged a record low 3.54 percent in the third quarter, down from 3.80 percent in the second quarter and 4.31 percent in the third quarter of 2011.
NAR President Moe Veissi said affordability conditions are a big factor in rising sales. “Historically low mortgage interest rates are encouraging many buyers who were on the sidelines,” he said. “Sales this year are notably higher than the levels seen in 2008 through 2011, so we’re clearly in a recovery phase with rising sales, declining inventory and rising prices. Of course the recovery would be stronger and more stable if we could return to safe but sensible mortgage underwriting standards.”
First time buyers.
First-time buyers purchased 32 percent of all homes in the third quarter, down from 34 percent in the second quarter; they were 32 percent in the third quarter of 2011.
The share of all-cash home purchases was 27 percent in the third quarter, down from 29 percent in the second quarter and 29 percent in the third quarter of 2011. Investors, who make up the bulk of cash purchasers and compete with first-time buyers, accounted for 17 percent of all transactions in the third quarter, down from 19 percent in the second quarter and 20 percent a year ago.
“The modest decline in first-time buyers and investors shows the impact of limited inventory in the lower price ranges from a shrinking share of distressed homes, which are popular with both of these groups,” Yun explained.
Regional performance varied
Regionally, existing-home sales in the Northeast increased 1.7 percent in the third quarter and are 9.8 percent above the third quarter of 2011. The median existing single-family home price in the Northeast slipped 0.3 percent to $246,900 in the third quarter from a year ago.
In the Midwest, existing-home sales rose 5.2 percent in the third quarter and are 17.8 percent higher than a year ago. The median existing single-family home price in the Midwest increased 4.2 percent to $151,100 in the third quarter from the same quarter in 2011.
Existing-home sales in the South increased 5.4 percent in the third quarter and are 11.7 percent above the third quarter of 2011. The regional median existing single-family home price rose 5.7 percent to $165,400 in the third quarter from a year earlier.
In the West, existing-home sales slipped 1.2 percent in the third quarter due to limited supplies, but are 2.1 percent higher than a year ago. With the tight inventory, the median existing single-family home price in the West surged 20.2 percent to $247,400 in the third quarter from the third quarter of 2011.
I have reposted an article below about the positive response builders are having to current high demand which is the highest in over 6 years with 5 straight months of positive growth…but just like buyers in some some South Florida markets finding a lack of available inventory, builders are finding a lack of building lots inventory to build on.
Steve Roberge
By Paul Owers, Sun Sentinel Blog
Builder confidence continues to grow, rising to its highest level in more than six years.
The National Association of Home Builders/Wells Fargo Housing Market Index hit 40 in September, the best reading since June 2006. It was a fifth consecutive monthly gain.
South Florida builders have been saying for months that business is picking up. GL Homes, Standard Pacific and Toll Brothers, among other companies, have announced new projects or started construction in Broward and Palm Beach counties.
Builders are bullish on sales, future prospects and consumer foot traffic, NAHB Chief Economist David Crowe said in a statement.
But Crowe added that lack of building lots in certain markets is a concern, as is the rising cost of building materials. “Given the fragile nature of the housing and economic recovery, these are significant red flags,” he said.
The repost below is from Steve Roberge, my South Florida contributor writing about market conditions in Ft Lauderdale. Steve is a top producing agent with Coldwell Banker in Ft. Lauderdale. Steve will be a regular contributor to my blog. [email protected]
Confirmation of what we are seeing in the Ft Lauderdale market. “After the six years of turmoil that we had, it’s good to see the trends strongly moving in the right direction,” John Tuccillo, chief economist for the Florida Realtors. A repost by Paul Bowers.
By Paul Bowers , Sun Sentinel Blog
South Florida’s housing recovery continued in August with higher prices and robust sales.
Broward County’s median price for existing homes last month was $214,950, a 13 percent increase from $191,000 a year ago, the Greater Fort Lauderdale Realtors said Wednesday.
There were 1,369 homes changing hands in August, up 15 percent from August 2011.
Palm Beach County’s median was $215,000, a 12 percent increase from a year ago, according to the Realtors Association of the Palm Beaches. The county had 1,247 home sales, up 8 percent.
Many areas across the country are seeing housing conditions improve following years of price declines.
“After the six years of turmoil that we had, it’s good to see the trends strongly moving in the right direction,” John Tuccillo, chief economist for the Florida Realtors, said in a statement.
Sellers now are commanding more money for homes, largely due to a lack of properties for sale.
At the end of August, Broward had 4,784 homes on the market, less than half the number from a year ago. Palm Beach County’s inventory is down 44 percent.
When a home hits the market, buyers usually flood the listing agent with requests for showings.
“I feel like we’re back in 2004 and 2005, where we’re having to race the customer to the house,” said Terry Story, a real estate agent in Broward and Palm Beach counties.
First-time buyer Gabrielle Harbin got married last week, but she had to interrupt wedding preparations and her work schedule to tour a Boca Raton house that just hit the market. The seller accepted her offer, and she hopes to close on the deal by October.
Harbin, 29, said the market is so tight that buyers can’t wait until the weekends to leisurely visit homes and make offers. “It just feels so rushed,” she said. “But that’s just the reality of it all.”
Connie Adcock listed her Davie home for sale or lease after taking a new job in California. She figured the process might take six months, but she had six offers in six days.
Zack Spinks sold his five-bedroom Coral Springs home this summer for $400,000. He had 25 showings in two and a half weeks and ended up with two offers.
“I was getting calls every day and had three or four showings a day,” Spinks said. “I was shocked. I didn’t expect that kind of activity.”
Meanwhile, data released Wednesday show that the South Florida metro area remains a top spot for home flipping.
Palm Beach, Broward and Miami-Dade counties rank fourth nationwide with 5,114 flips during the first half of the year, according to RealtyTrac Inc. That’s up 59 percent from the same period of 2011.
The flippers – investors who buy homes and resell them within six months – earned a profit of $38,943, RealtyTrac said. The average number of days per flip is 105.
During the housing boom, flippers often bought and sold homes within days or weeks, capitalizing on rapid price appreciation. Today’s flippers are renovating the homes and adding value before reselling, RealtyTrac spokesman Daren Blomquist said.
“Ultimately, that’s good for the market,” he said. “They’re fixing these homes up so they’re the best properties for sale in the neighborhood.”
The Big Number is 21%. That’s the increase in condo sales year over year at the end of the 3rd quarter, September 30. Combined, all Boston neighborhoods saw a 21% increase in the number of condo sales year to date, a 3% increase in the average price of a condominium sold to $545K, and an 8% increase in the median sales price to $409K. This real estate market is healthy except for the continuing decrease in inventory levels. Inventory levels of available condo’s for sale have fallen 41% to 919 properties for sale versus 1,567 at this time last year.
The Back Bay, saw a 20% increase in sales year to date, but the average price of a condo sold dropped by 2% to $1.120M. The inventory level of condos for sale dropped 53% to 95 condos for sale vs 204 last year.
The South End saw a 13% increase in the number of condo sales to 425 condos sold year to date compared to 377 last year. The average price of a condo sold increased 4% to $690K compared with $665K last year. The inventory of condos for sale decreased 52% from 173 last year to 83 today. This will continue to be a factor in market performance going forward.
South Boston saw a 28% increase in the number of condo sales year to date compared with 360 last year. The average sales price of a condo increased by 9% to $421K compared with $388K last year. South Boston has the largest drop in inventory of all downtown n’hoods down 60% from 196 properties for sale last year to 78 available for sale today.
Inventory remains the problem, but as I have said repeatedly this market is so resilient and so desirable that declining inventory levels have not negatively effected the steady increase in sales and prices. Go figure!
What a summer we have had in Provincetown… the great energy that we began to see in the second quarter continued into Q3. Ongoing economic optimism and low interest rates continue to attract buyers. We are seeing a wonderful phenomenon here where buyers who have been on the sidelines have decided to jump into the market. With such a wide variety of properties for sale – both in price and character – buyers have much to choose from.
Year-to-date condominium sales through September 30 totaled 115 properties – a full 50% more than last year’s 76 sales. The average selling price for a condo was $411K – a 15% increase from last years $357K. The median selling price was $398K – up 19% from $334K last year. And condos sold at an average 95% of asking price.
Total sales volume in the condominium category was $47M year-to-date compared with $28M last year – a solid 68% increase. Days-on-market, an important indicator of market strength, decreased 30% to an average of 219 total days-on-market from last years 314. There are 134 condos on the market today with an average asking price of $481K with an average of 804 square feet and $598 per square foot.
Sales of single-family homes increased even more dramatically to 38 units – a 100% increase from last years 19 single-family home sales. The average selling price was $795K – a 1% decrease from $800K last year. Total sales volume on this category was $30M compared with $15M last year – a 100% increase. Average total days-on-market decreased 15% to 227 vs. 266 last year. There are 72 single-family properties on the market today with an average price of $1.388M and 2,295 square feet at $605 per square foot.
Fall is one of the busiest selling season’s here, so we look forward to more good news in our year-end reporting. But, that is a full three months away. A lot can happen in that time!
If you are visiting for Halloween, Holly Folly, or New Years, stop in to say hello.
My good friend, excellent agent and blogger Briggs Johnson at Coldwell Banker Residential Brokerage hits it squarely on the mark with this post which illustrates the decrease in inventory year over year and its potential effect on the market. I have posted it in its entirety below. Visit his blog.
There are several indicators and indexes that people follow to determine market conditions. The indicator I am going to use that sparked this blog entry is going to called the “Caravan Indicator”. What many people don’t know is that behind the scenes here at Coldwell Banker (downtown), every few weeks, we hire a bus to drive us all around town to check out new listings in Back Bay, Beacon Hill, South End, South Boston and the Seaport District etc. Its a great way for us to view new inventory and for us to be knowledgeable of the market in all price points. Today, is caravan day and it was cancelled due to lack of inventory…..Wait, What?! I can understand there being a cancelled caravan in late fall or August when everyone is on vacation, but not now, not September, not in the second week of the second strongest time of year to get new inventory. Really?
I was ready to bounce around the city and view some properties, but, since that wasn’t happening, I did some research to see how limited inventory really is. I went on MLS and looked up current inventory, the amount of listings currently under agreement and the amount of listings that have been sold in the past 2 months. The numbers don’t lie and I found them pretty shocking. Since I really only focus on the downtown neighborhoods. I used the 4 neighborhoods i do a lot of business in . Here are the Stats:
Neighborhood # of Listings # Under Agreement # Sold in last 2 months
Back Bay 104 57 124
South End 78 57 110
Beacon Hill 59 14 41
Seaport District 16 7 23
Last Year (2011) # of Listings % Decrease from 2011
Back Bay 213 52%
South End 183 58%
Beacon Hill 82 28%
Seaport District 37 57%
The way I look at this information is that it is a great time to sell and list a property. There are a ton of buyers out there and they are in desperate need of decent inventory. On the flip side, If you are a buyer looking in these neighborhoods, be prepared to be frustrated and be ready to enter a multiple offer situation (if you are a serious buyer looking in a popular area). In the South End alone there have been 24 places go under agreement in the past 2 weeks. If you are a buyer looking in the South End under $450k. there are only 9 places on the market and only 3 of them are north of Washington Street. If you are a buyer looking in the 800-1 million range in the Back Bay, there are only 11 listings on the market. Six of those listings have been on the market for over 100 days, so quality is as compromised as quantity right now. If you are a Beacon Hill buyer looking from 600-900k there are only 3 listings on the market. 2 of those listings have been on the market for over 170 days. Brutal!!
I can understand that sellers are hesitant to list because there isn’t much to move into if they sell and want to stay in downtown Boston. But if you are a possible seller looking to move out of state or to the “burbs” this could be an ideal time to make the jump.
I know all downtown agents are saying “list your property now” but hopefully some of this data, makes you think about the scenario with a different tone. Have hope and don’t be afraid to enter the market, just be informed and realistic.
The $1M and above market in Provincetown has been relatively active this season. The above $1M price range is from $1M to a high of $4.75M. Of the 136 properties (single family, Multi-family and condos) that have sold YTD in 2012, 8 have sold above $1M, and they were all single family properties. These 8 property sales equals 5% of total unit sales year to date.
There are 218 properties (singles, multis, and condos) for sale in Provincetown of which 55 are priced above $1M, which represents 25% of the total.
5% of sales, 25% of the available properties for sale… it is crowded! For buyers in this price range there are plenty of properties to look at for price and amenity comparison. Currently there are 5 properties under contract with asking prices above $1M. I will profile these once they close.
Below are descriptions of the properties that have sold over $1M year to date. Once again a caveat. I took the descriptions straight from MLS, so errors in syntax and grammar are out of my hands.
67 Bayberry Ave SOLD $1.05M
67 Bayberry Ave, a contemporary home, impeccably maintained, this home is bright and airy, white washed in a soft colors, and is ideal for entertaining with an open plan along with 3 bedrooms. Enter through glass doors to a spacious living room with fireplace, a kitchen & separate dining room that comfortably seats 10. The living room has two sets of atrium doors leading to a covered deck and large terrace. The kitchen has custom cabinetry, and limestone counter tops. There is a guest room with deck on this level with full bath. Next level has an open den, and mb suite with separate bedroom and sitting room with fireplace, bath and deck. The 3rd bedroom is on this level with another bath. Up one more level is an intimate sun room with 3 decks.
510 Commercial St SOLD $1.05M
510 Commercial Street is a lovely single family home with water views. The 1st floor has a spacious living room with fireplace, generously sized dining room, recently renovated kitchen, laundry area and full bath. There is also an adjoining one bedroom, one bath apartment with exclusive outdoor space, perfect for guests. Upstairs there are two master bedrooms with ensuite baths, one of which has direct water views. A second guest room with water views and full bath complete this level. The home is well set back from Commercial St allowing for a spacious front yard and privately situated side yard with patio. Driveway parking for 3 cars in tandem.
3 Atlantic Ave SOLD $1.065M
3 Atlantic Ave. Very few people have enjoyed the pleasure of owning this West End historic home. One of Provincetown’s oldest homes, dating back to the 1700’s, this A+ quality recent restoration makes this pristine home an exceptionally rare opportunity. The original architectural details have been painstakingly preserved side-by-side with the highest quality contemporary fixtures, appliances, systems, windows, doors, and more. The value is further magnified by both the central location-steps from the beach-and the generous enclosed yard space for parking, entertaining and gardening. The current owners have taken extreme care to bring this three-quarter Cape style home into the 21st century with a great deal of love and attention.
19 Berry Lane SOLD $1.093
19 Berry Lane. Steps from the Beach and Views from Every Room! Here is Your Opportunity to Own a Custom Built Provincetown Home in the Quiet East End. From the Moment you enter the Foyer you will feel a sense of peace and serenity. The Living Room has Custom Stained Glass Windows from an old N.H. Church (easily removed, decorative only), hardwood floors and balcony access. The 2 Story Family Room offers a solid wall of windows, designed to maximize the expansive views,Brick fireplace with Bluestone Hearth and accent wall. Watch the Harbor lights from the Dining Room. Entertaining is a breeze in this Spacious, light filled Kitchen! Upstairs you’ll find the Owner’s Suite with Spa Quality Bathroom and the Guest Wing with 2 Bedrooms with views. Full Daylight BSMT also w/ views, 2 car garage.
9 W Vine St SOLD $1.2M
9 West Vine Street. Completely renovated 5 bedroom 4 bath home located in the heart of the West End. There is a spacious living room, dining area and kitchen on the first floor which opens to a blue stone patio and fenced in yard. The kitchen features a large center island, granite countertops, a farm sink & marble backsplash. There is a master bedroom suite with a private tiled bath and separate entrance, a second bedroom and tiled bath on the first floor. The second floor features a second living or family room with gas fireplace, in addition to an office, three more bedrooms. Stained pine & fir flooring in all living areas, Laundry room, ample closet space, an unfinished attic, outdoor shower, & 2 car parking.
525 Commercial St SOLD $1.25M
525 Commercial Street. Funky East End bay front home with multiple personalities. The original structure appears to be a marine related or mercantile structure dating from pre-1800 and is now known as the Not So Great Room with soaring 2 story ceiling and original folk art found object installation by Jackson Lambert. A 20th century addition is a large sunken living room with brick fireplace, wood floors and bay windows facing Commercial St and the bay. The most recent custodians of this gem added a contemporary solarium and deck on the bay and updated the kitchen and second floor bath a few years ago. Estate sale. Offers are subject to estate obtaining a license to sell from probate court. Town sewer outstanding betterment of only $2,295.41, to follow deed
107 Commercial St SOLD $1.6M
107 Commercial Street. There are only 15 single family waterfront homes in the west end – not since 2004 has one come to the market below $2M. Don’t miss this opportunity to purchase the perfect beach house in the perfect location that usually exists in dreams. This charming 3-BD, 2-BA waterfront home enjoys great privacy and spectacular views. 1st floor has an open floor plan, exposed beams, wood-burning stove and fireplace (not in working order), with sliders leading to front and side yards and large waterfront deck with steps to the beach. Also on this level are a full bath and laundry. The 2nd level has 2 waterfront bedrooms with sliders to a common deck with ladder to rooftop deck. There is also a 3rd BD and BA on this level. 3-car parking, Sewer Connection.
6 Winston Ave SOLD $1.8M
6 Winston Ave. Spectacular Waterfront Home with breathtaking views of Cape Cod Bay from almost every room. Talk about inspiration and beauty! There are 4 bedrooms in this magnificent home with the master on the second floor, gas fireplace, dazzling views of the water, a large elegant master bath, and a door leading to your private deck overlooking the water. Another bedroom shares those same views and deck, along with a full bathroom that separates the second and third bedrooms upstairs. First floor is full of light with a virtual wall of sliders that open to an expansive deck for your sunny enjoyment and relaxation. A large stunning kitchen with Granite counter tops, a first floor bedroom or office and a new artist studio with more gorgeous views of the water. Offered at $2,350,000.
This is an interesting blend of East End, West End, and downtown properties. My favorites are 3 Atlantic as it is in the near east end on Atlantic and Commercial and just smack in the middle of things on one of the most special streets in town. 107 Commercial is a favorite as it is one of those special properties right around the bend from the Coast Guard Station in the west end that is the epitome of casual downtown beachfront living… everyone who walks by it says…”I wish I owned that house.”
*Data is for single families, multi families and condos only sold from 1/1/12 to 8/31/12. There are some additional properties for sale in Provincetown like hotel/motels, and commercial properties which I do not generally include in my analysis of residential sales. All data from Cape Cod and Islands MLS.
Great article in the WSJ. Nick Timiraos does a great job in putting things in perspective.
By Nick Timiraos of The Wall Street Journal
In each of the last three years, home prices have increased in the spring and summer, when more people are buying homes, before giving back all of those gains and then some in the fall and winter, when activity cools.
But it is beginning to look like that might not happen this year, absent a major stumble for the economy.
Home prices in July were up by 3.8% from one year ago, the largest year-over-year jump in six years. Moreover, prices have shot up by 9.6% from February, when they registered their lowest levels of the housing downturn, according to CoreLogicCLGX +0.40% data released Tuesday.
This adds evidence to the case that U.S. home prices may have hit bottom earlier this year. Even though prices will soften in the autumn, “we have a much better supply and demand dynamic” than in previous years, said Mark Fleming, chief economist at CoreLogic.
So when people say they believe home prices haven’t reached a bottom—that this year’s seasonal gains will be wiped away by January or February of next year—here’s the relevant question: Will home prices fall by 9.6% in the next six months?
Anything, of course, is possible. Home prices fell in the winter—what Mr. Fleming calls the “offseason”—in each of the last three years to record a new low. But they have not fallen by 9.6% in any six-month span since March 2009, which was when the U.S. economy was still in recession.
That’s the good news. Here’s the bad news: While the year-over-year comparisons look good right now, the economy—and workers’ wages—aren’t growing fast enough to justify this kind of increase on a sustained basis.
Instead, the snapback in home prices in the last six months is more an indication of how prices “over-shot” over the past year. Investors, sensing deals, began buying up homes. The most likely scenario for home prices over the next year is that they may rise, but not at the breakneck pace of the past few months (and they’ll fall on a relative basis in the coming months due to normal seasonal factors).
There are other serious headwinds. It’s still hard to get a mortgage, and many households have too much debt. Millions of homeowners owe more than their homes are worth. Millions more have enough equity to sell their house but not enough to make a down payment on their next house and pay a real-estate broker’s commission.
As we’ve written many times before, the strong rise in home prices this year owes as much to sharp declines in inventory as it does to demand-side improvement. Banks have been much slower to take back and list foreclosed properties, easing pressure on home prices but leaving a bloated “shadow inventory” of potential foreclosures.
These homes will weigh on markets for years, though there’s less evidence that they will be dumped on the market at once. While the shadow inventory may not lead to a big drop in prices that some have feared, it will probably keep a lid on future home-price gains.
Finally, lower mortgage rates have dramatically increased the purchasing power of today’s home buyers when compared to one year ago. Some real-estate executives are nervous that demand isn’t stronger given today’s low mortgage rates, and they’re worried about what will happen if rates rise.
The bottom line: Don’t be surprised if the all-time low in home prices is in the rearview mirror. But this doesn’t mean a full-on recovery is here, and there’s little evidence that the current pace of improvement can continue. For now, home prices appear to be bumping along a bottom.
