Median existing single-family home prices are firming in many metropolitan areas, while improving sales and declining inventory are creating more balanced housing market conditions, according to the latest quarterly report by the NATIONAL ASSOCIATION OF REALTORS®.
Single-family home prices rose in 74 out of 146 MSAs in the first quarter, while prices declined in 72. That’s a big increase from the fourth quarter of 2011, when only 29 areas showed gains from a year earlier.
Most buyers have the income needed to buy a home in their area, assuming they have good credit, a downpayment of 5% to 20%, and they spend 25% of their total (gross) income on their mortgage.
“Qualifying incomes are well below median incomes in most of the country, which means home buyers generally can stay well within their means,” Yun said. “For example, a buyer in Indianapolis making a 10% downpayment would need an annual income of $24,000 to purchase a median-priced home, while in Seattle it would be $55,300. For now, buyers are facing an extraordinarily advantageous situation if they can obtain a mortgage.”
The national median family income was $61,000 in the first quarter. However, to purchase a home at the national median price, a buyer making a 5% downpayment would only need a $34,700 income. With a 10% downpayment the required income would be $32,900, while with 20% down, the income drops to $29,300.
Supply and demand
The housing market in some MSAs remains unsettled, said NAR Chief Economist Lawrence Yun. “Home prices are more volatile than normal because of sudden upswings in buyer activity in some localities, and also are affected by the prevalence of distressed sales,” he said. “Home prices lag sales activity because the transactions were negotiated mostly in the previous quarter. Given the steadily dwindling supply of inventory and notably higher listing prices that are being negotiated today, prices are expected to show further improvements in the near future.”
Pockets where the supply of homes is getting low are developing. “We now have broad shortages of lower priced homes in much of the country, with very tight supply in Western states for homes through the middle price ranges,” Yun said. “This is good news for many sellers who wish to list now, or for those waiting for prices to improve.”
At the end of the first quarter, there were 2.37 million existing homes available for sale, which is 21.8% below the close of the first quarter of 2011, when there were 3.03 million homes on the market. There has been a sustained downtrend since inventories set a record of 4.04 million in the summer of 2007.
Average home price
The national median existing single-family home price was $158,100 in the first quarter, which is 0.4% below $158,700 in the first quarter of 2011. The median is where half sold for more and half sold for less.
Distressed homes — foreclosures and short sales which sold at deep discounts — accounted for 32% of first quarter sales; they were 38% a year ago.
Total existing-home sales, including single-family and condo, increased 4.7% to 4.57 million in the first quarter from 4.37 million in the fourth quarter, and were 5.3% above the 4.34 million level during the first quarter of 2011, when sales spiked.
“This is the highest first quarter sales pace since 2007,” Yun said. “With strong market fundamentals, total home sales this year should rise 7% to 10%.”
There are more opportunities for buyers to step into home ownership today, said NAR President Moe Veissi.
“Historically favorable housing affordability conditions are making it easier for buyers to enter the market despite the unnecessarily tight credit conditions,” he said. “Housing supply and demand are roughly balanced with overall housing supply at the lowest level in six years, putting sellers on an even footing with buyers in most markets.”
Who’s buying homes?
First-time buyers purchased 33% of homes in the fourth quarter, unchanged from the fourth quarter; they were 32% in the first quarter of 2011.
The share of all-cash home purchases in the first quarter was 32%, up from 29% in the fourth quarter; they were 33% in the first quarter of 2011. Investors, who make up the bulk of cash purchasers, accounted for 22% of all transactions in the first quarter, up from 19% in the fourth quarter; they were 21% a year ago.
In the condo sector, metro area condominium and cooperative prices — covering changes in 52 metro areas — showed the national median existing-condo price was $157,200 in the first quarter, up 3.4% from the first quarter of 2011. Eighteen metros showed increases in their median condo price from a year ago and 34 areas had declines.
Regional home prices
Regionally, existing-home sales in the Northeast jumped 8.6% in the first quarter and are 6.6% above the first quarter of 2011. The median existing single-family home price in the Northeast declined 3.2% to $226,300 in the first quarter from a year ago.
In the Midwest, existing-home sales rose 5.5% in the first quarter and are 11.7% higher than a year ago. The median existing single-family home price in the Midwest increased 0.8% to $125,300 in the first quarter from the same quarter in 2011.
Existing-home sales in the South increased 2.1% in the first quarter and are 4.1% above the first quarter in 2011. The median existing single-family home price in the South rose 1.2% to $143,600 in the first quarter from a year earlier.
Existing-home sales in the West rose 5.9% in the first quarter and are 1.4% higher than a year ago. The median existing single-family home price in the West slipped 0.9% to $196,200 in the first quarter from the first quarter of 2011.