Experts say the recovery is stronger than expected, but low inventory is the main factor for rising home prices
After years of declining home values and doomsday real estate forecasts, the housing market is roaring back with rapidly rising home prices and more buyers than sellers.
Low inventory is the name of this real estate market. Nationally, the number of available houses to purchase slipped to 2.49 million. The number of homes listed for sale is 20 percent below last year’s level.
Many experts say today’s robust price growth is the result of long pent-up demand. Those buyers who sat out the market waiting for prices to stabilize and the economy overall to rebound are now ready. With better than expected job growth, people now feel the time is right to finally make a move.
Still, people are proceeding cautiously.
“Typically, homeowners are waiting until their house is sold before they buy, then they need a home right away,” says David Crowe, chief economist of the National Association of Home Builders. “There’s a greater likelihood that today’s prospective homebuyer is in an urgent situation.”
That may account for the rapid rise in prices.
Nationwide, prices increased 11.3 percent so far this year, according to the National Association of Realtors. Some of the hottest markets experienced strong double-digit gains that economists say are “unsustainable.”
For instance, Phoenix saw a 30 percent home price gain. In Akron, Ohio, home prices rose by 32.7 percent, while Miami prices rose by 20.8 percent.
“The rate of price increase cannot continue above income growth,” says Danielle Hale, economist at the National Association of Realtors.
Right now sellers hold the balance of power; however, that may not translate into profits.
According to CoreLogic, a real estate analytics service provider, many homeowners still suffer from “negative equity,” meaning they owe more than their home is worth.
With rising prices, that situation is also improving.
“We are still far below peak home price levels, but tight supplies in many areas coupled with continued demand for single-family homes should help us close the gap,” says Anand Nallathambi, president and CEO of CoreLogic.
It’s possible that those who purchased homes in 2004 are now in a position to sell, because today’s home prices are the same statistically as they were nine years ago.
According to CoreLogic, nearly 20 percent of all residential properties with a mortgage had negative equity at the end of the first quarter of 2013. That figure is down from nearly 22 percent at the end of 2012, because home prices are rising due to low inventory.
“Some sellers that are breaking even think they’re making out right now,” says Frank Mears, director of training and agent development for Meybohm Realtors in Augusta, Ga.
Mears says he expects continued price increases but warns it will be a long time before the market reaches the boom-time prices just before the housing market collapse. “We need a steady, methodical, logical comeback.”
Lawrence Yun, chief economist at the National Association of Realtors, is calling on national home builders to provide more inventory. With pending home sales 12 percent higher now than the same time last year, Yun says 2013 will be a stronger than anticipated housing recovery year.
That recovery is tempered, however, as the home building industry struggles with tight lending restrictions, labor shortages and land acquisition issues. Says Crowe, “we only have 39,000 ready-to-go homes in the whole country,” currently.
In a typical market, that would be the sales volume of a large city. He says, the “home builder’s chief barrier is money.”