May 2012 Market Update
The housing market and the overall economy are improving at modest rates nationally, and in some areas they have actually gained momentum. The Conference Board’s CEO confidence index is up a notable 14 points—from 49 last quarter to a current reading of 63. A reading of 50 is the threshold above which indicates an optimistic outlook and below indicates pessimism. Rapidly growing optimism is a good sign for future hiring and growth.
“The recovery is happening, though not at a breakout pace, but we have seen nine consecutive months of year-over-year sales increases,” NAR Chief Economist Lawrence Yun said. “Existing-home sales are moving up and down in a fairly narrow range that is well above the level of activity during the first half of last year. With job growth, low interest rates, bargain home prices, and an improving economy, the pent-up demand is coming to market and we expect housing to be notably better this year.”
As rents continue to rise, buying becomes a more and more attractive option as home affordability, or the percent of income it takes to pay the mortgage, continues to be among the most favorable in history. The current record interest rates, which factor into affordability, cannot last forever—buyers wanting to take advantage of this unique time in history will want to act before rates rise.
Home sales slipped 2.6% from the previous month to 4.48 million units, yet are 5.2% higher from a year ago. A strengthening economy is improving consumer confidence and drawing an increasing number of people into the market. In some local markets, there is not enough inventory of quality homes for buyers to purchase. As these markets see more new listings for their hungry buyers, national home sales could increase.
Thanks to a decline in distressed properties, which sell for a 15%–20% less on average compared to non-distressed homes, the median home price rose 5.3% compared to the previous month and 2.6% compared to a year earlier to $163,800. This is the first time in 8 months that home prices have been up by over 1% month-to-month. NAR President Moe Veissi said, “In most areas over the long term, home prices have nowhere to go but up.”
Inventory- Month’s Supply
Housing inventory remained stable from the previous month at 6.3 months supply and was 26% below year-ago levels. This marks the fourth consecutive month of inventory near a six-month supply, which is the threshold of a balanced market. Movement out of the deep buyer’s market that has persisted over the past three years is an important step that must precede a full-scale housing market recovery.
Source: National Association of Realtors
Mortgage rates continue to boost home affordability by remaining below 4%—some of the lowest rates on record since 1971. These rates may have begun to find a bottom as there is not much more room to go down, adding to the urgency to buy a home now while these record lows hold.
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