Wednesday, August 29, 2012

Existing Homes Sales Improve as Prices Rise

According to the National Association of REALTORS®, resales of single-family homes, townhouses, condominiums and co-ops increased 2.3% in July from June to a seasonally adjusted annual rate of 4.47 million after an unexpected fall in June.

Resales jumped 10.4% compared with the same month last year. Economists at the association believe sales could reach 5 million next year.

Nationwide, prices have increased substantially, with the median rising 9.4% from a year ago to $187,300 last month. The increase is the largest since a 10.2% boost in January 2006.

According to economists, demand is stronger due to low mortgage interest rates and rising rents.  Distressed homes, which include foreclosures and short sales, made up 24% of sales in July, down from a quarter the previous month and nearly 30% a year earlier.

The median price of a single-family home was $188,100, up 9.6% from the same period in 2011. Sales of such properties rose 9.9% over the same period to an annual rate of 3.98 million.

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Thursday, August 23, 2012

National Housing Shortage

As we see signs of a housing market recovery and the glimpse that things seem ready to return to normal, major markets across the U.S. are about to be impacted by a new housing crisis… a shortage of housing.

According to the National Association of Realtors, a comparison of the second quarter of 2011 to the second quarter of 2012 indicates:
  • Existing home sales are up 8.6%
  • Existing inventory for sale is down 24.4%
  • Median home prices are up 7.3%
Individually, each of these statistics indicates a major market transition. Collectively, they show unprecedented one-year movement in the housing market.

According to the U.S. Census, the recent history of housing construction has been relatively consistent (between one and two million homes produced since 1968):
  • Between 1968 and 2008 at least one million homes were constructed each year
  • The year with the greatest output was 1973 at 2,100,500 homes
  • The year with the lowest output was 1982 at 1,005,500 homes
  • The average output between 1968 and 2008 has been 1,531,900 homes
In 2008, there were 1,119,700 homes constructed. Of course, we now know that 2008 was a pivotal year in the housing market. In 2009 these numbers began to change dramatically.

Between 2009 and 2011 there have only been an average of 647,600 houses built, and every year since the number of homes built has declined. According to the Joint Center for Housing Studies at Harvard University, this year's report estimates we need between 1.18 million and 1.38 million housing units per year to meet the demand for new household development that will occur between now and 2020.

Based on these numbers, one can draw the conclusion that we will see a constrained inventory market in the immediate future. Couple this with the fact that housing is more affordable than it has ever been, and interest rates are at record lows, and the picture of an oncoming national shortage becomes much clearer.

Real estate professionals have been shocked by how quickly markets across the country have transitioned from excess inventory to having constrained inventory. The first markets to experience the housing crisis in 2007 and 2008 have been the first to experience the housing shortage in 2012. Markets in Florida, Arizona, Nevada and California are already experiencing constrained inventories. Year-over-year sales in the sub $100,000 price category has plummeted in these areas by as much as 40%.

The severity of the housing crash is affecting the speed with which the home construction markets are responding to a housing shortage. Companies in the construction supply chain have downsized or disappeared in record numbers. Given the lead times in housing construction due to permitting, manufacture of supplies (drywall, lumber, etc.) and the availability of skilled labor, the speed with which the market can react to demand has slowed considerably.

If you are one of the millions of Americans that have been sitting on the fence waiting for the ideal time to purchase a property, this may be the time to seriously consider making your move. This is true of individual homebuyers, but it is also true of real estate investors as well. In 2010 investors represented 17% of the housing market; in 2011 they represented 27%, and all indications are that we are in the midst of another major investor purchase increase in 2012. 34% of all homes purchase today are purchased all-cash.
For investors, housing today represents an investment class that outperforms every other class of investment in both cash returns and, for the past year, in appreciation of equity.

It may hard to imagine a housing shortage in the middle of what many consider a housing crash; however, the numbers, market conditions and major market inventories are starting to make this startling prediction real.

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Saturday, August 18, 2012

The Impact of Supply & Demand on the Housing Market

For some time now, we have attempted to shed light on the fact that pricing in today’s real estate market, as it is in the markets for every other saleable item, will be determined by the concept of ‘supply and demand’.

According to, “the relationship between supply and demand determines the price of a commodity. This relationship is thought to be the driving force in a free market.”

In real estate, supply and demand is represented as the current month’s supply of homes for sale (the number of homes for sale divided by the number of homes sold in the previous month).

Most real estate professionals know, or at least have a good idea of, the month’s supply of inventory in their market. But why? Because of its effect on pricing moving forward.

While there is no steadfast rule that will apply to pricing in every category of housing, here is a great guideline by which to go:
  1. 1-4 months’ supply creates a sellers’ market where there are not enough homes to satisfy buyer demand. Appreciation is guaranteed.
  2. 5-6 months’ supply creates a balanced market. Historically home values appreciate at a rate a little greater than inflation.
  3. 7-8 months’ supply creates a buyers’ market where the number of homes for sale exceeds the demand. Depreciation follows.
When you discuss home values with either a seller or buyer, you should be prepared to show what the supply of, and demand for, homes is in the same category of home they are thinking of selling or buying. You should also be prepared to discuss any projected change in those numbers (such as a potential shadow inventory of distressed homes or a projected increase in demand because of a new plant opening).