Fresh on the heels of the hot summer selling season, housing analysts and real estate insiders are offering their perspectives on the rest of 2013 and beyond.
The overall consensus on the housing recovery is that it’s underway. Three key pieces of data underscore that sentiment.
From the U.S. Census Bureau: New construction starts were up 24 percent in the first half of 2013 compared with the first half of 2012.
From the National Association of REALTORS®: Existing home sales (excluding foreclosures and short sales) were up 32 percent year-over-year in June.
From the Greater Northwest Indiana Association of REALTORS®: Both Lake and Porter Counties saw more homes sold in fewer days at higher average prices during the first half of 2013 when compared to the first half of 2012.
In Lake County, the number of single-family existing home sales was up 26 percent at 2,537 from 2,015 and the average sales price rose to $132,701 from $131,536.
In Porter County, the number of single-family existing home sales was up 23 percent at 996 from 813 and the average sales price rose to $186,422 from $180,918.
In addition, the number of days a property was listed on the market was down from 141 last year in Lake County to 124 this year, while Porter County saw a decrease from 149 to 140.
“Our office closed nearly a property a day during the first half of 2013,” Jeanne Sommer, broker/owner of CENTURY 21 Alliance Group in Valparaiso, said. “A healthy market has six to eight months of housing inventory. The market in Lake and Porter Counties was robust, with less than five months in Porter and less than six in Lake. We actually still need more listings for our buyers. Now is the time to sell.”
Looking ahead, there are a number of economic factors such as increasing interest rates and a potentially rising inventory of homes for sale that could possibly slow the rate of home price appreciation we’ve seen over the last year.
Yet, on the other hand, pent-up demand from years of historically low housing production and continued job growth which contributes to the creation of new households could keep both home values and rental rates on the upswing for the rest of the year.
Rising interest rates seem to be the top worry for prospective home buyers right now. In fact, more than half of Americans stated they would be discouraged from buying if rates reach 6 percent, which is a normal level when you look at the pre-crash 2000s.
After hitting record lows in late 2012, 30-year-fixed mortgage rates rose more than a full point between early May and July this year. Although it’s predicted that rates could continue a slow rise – which by all accounts will slow price gains, it is largely agreed that rising rates will not derail the housing recovery at this point.
That’s partly because inventory hit a 12-year low at the beginning of 2013 thanks to years of low new construction, homeowners unwilling to sell and steadily fewer foreclosed homes on the market. While inventory typically reaches an annual low in late winter, increases in both new construction and existing homes for sale through the spring and summer have not been able to keep up with demand in most parts of the country.
Another reason is the fact that mortgage rates are still very near historic lows and prices are still relatively affordable, which makes buying a much better financial prospect than renting.
Even if rates keep rising in the short-term, it’s going to take quite some time before buying a home looks expensive compared to renting in many places, according to Jed Kolko, Trulia Chief Economist.
“We updated our ‘Rent vs. Buy’ analysis with the latest asking prices and rents from March, April, and May 2013,” he explained. “Following our standard approach, we calculated the cost of buying and renting for identical sets of properties, including maintenance, insurance, taxes, closing costs, down payment, sales proceeds, and, of course, the monthly mortgage payment on a 30-year fixed-rate loan with 20 percent down and monthly rent. We assume people will stay in their homes for seven years, deduct their mortgage interest and property tax payments at the 25 percent tax bracket, and get modest home price appreciation.”
The result: With a 5 percent mortgage rate, buying is still 34 percent cheaper than renting nationally. Mortgage rates would have to rise a huge amount – to 10.5 percent – to tip the math in favor of renting, which isn’t impossible. Rates were that high throughout the 1980s, but have been consistently below 10.5 percent since May 1990.
I suppose that makes Millennials – people age 18-34 – the wild card in the future of housing. As they form new households, will they choose to own or rent?