Home Prices Rose 5.8% in 2014

As 2014 drew to a close, median home prices rose to their highest level since 2007 and home sales picked up.

For 2014, the national median existing home price hit its highest level since 2007: $208,500. The median price also represents a 5.8% increase from 2013 ($197,100), data from the NATIONAL ASSOCIATION OF REALTORS® show.

Meanwhile, the number of home sales for the year declined 3.1%. But despite low levels of properties for sale in many markets, the number of single-family homes, townhomes, condominiums, and co-ops that sold in December 2014 rose 2.4% from November and were up 3.5% compared with December 2013.

Home Supply Tightens in December

At the end of December, there were 1.85 million existing homes available for sale, which would take 4.4 months to sell at the current rate homes are selling. In November 2014, there was a 5.1-month supply of homes for sale. A 6-month supply is considered a balanced market that favors neither homesellers nor homebuyers.

First-Time Buyers Challenged?

The lack of homes for sale could cause problems for first-time buyers struggling to afford homes, says NAR Chief Economist Lawrence Yun. “A minimal selection and the potential for faster price appreciation could offset the demand from buyers encouraged by a stronger economy and sub-4% interest rates,” says Yun. “Housing costs — both rents and home prices — continue to outpace wages and are burdensome for potential buyers trying to save for a downpayment while looking for available homes in their price range.”

The percentage share of first-time buyers dropped to 29% in December, down from 31% in November, but up from a year ago (27%).

Still, the outlook for first-time homebuyers is encouraging. A reduction in FHA mortgage insurance premiums that goes into effect Jan. 26, 2015, will help make homebuying more affordable for first-timers, says NAR President Chris Polychron. “The move to lower premiums will enable more buyers to enter the market while continuing to protect taxpayers from the risky lending practices that led to the housing crash,” he says.

Investors Buying Homes

Investors continued to play an active role in the housing market. All-cash sales were 26% of transactions in December, up from 25% in November and 32% in December of last year. Individual investors, who account for many cash sales, purchased 17% of homes in December, up from last month (15%), but down from December 2013 (21%).

Foreclosures Down Since 2013

December distressed sales — foreclosures and short sales — were down to 11% from 14% a year ago, but were up from November (9%). Eight percent of December sales were foreclosures and 3% were short sales. Foreclosures sold for an average discount of 15% below market value in December (17% in November), while short sales were discounted 12% (13% in November).

December 2014 Regional Existing Home Sales

 Sales Volume Compared with Nov. 2014Dec. 2014 Median PriceMedian Price Compared with Dec. 2013
NortheastDown 2.9%$246,600Up 3.2%
MidwestDown 3.5%$159,100Up 5.3%
SouthUp 3.8%$184,100Up 6.6%
WestUp 9.8%$299,600Up 5.6%