The Real Estate Report 6/28/2013
Why Are Home Prices Rising--Part
One
Statistics released this spring show that both new and
existing home prices have risen significantly over the past twelve months. For
example, the census bureau has indicated that the median price of a new home
sold in April was $271,600, which was 8.3 percent higher than the previous
month and 13.1 percent higher than one year ago. This is interesting news not
only because it affects those in the market to purchase a home, but the economy
in general. Wealth is created through rising home prices and this wealth has
the potential to increase consumer confidence and thus consumer spending. Two
questions arise from here--why are home prices rising and will they continue to
do so? They are very interesting questions because just a few years back many
were predicting that home prices would not recover for decades. In our opinion,
it is also no coincidence that rates are rising at a time when home prices are
rising and the real estate market gets stronger.
There are four reasons that home prices are increasing.
For one, home prices dove down too low during the slump. In many areas the
price of homes was below the replacement cost of purchasing a home. With so
many foreclosures on the market, there was too much downward pressure on home
prices. In addition, the cost of owning came in significantly below the cost of
renting --especially when record low rates were factored into the equation.
Investors across the nation recognized these economics and came in to purchase
excess inventory to lessen the foreclosure issue and the equation quickly
reversed. This caused the second reason for higher home prices--a tightening of
inventory caused the price of homes being "bid up" in many cases.
Across the nation, we have seen evidence of multiple bids on properties up for
sale--especially at the lower or middle end of the market. This has created the
opposite situation with regard to why home prices dove due to bank sales. In
essence, reasons one and two have created a bounce in the market. The last two
reasons? The economy and demographics. We will discuss these in part two of
this series, as well as the future outlook for home prices.
"Location, location, location near public
transportation" may be the new real-estate mantra according to a new
study released by the American Public Transportation Association (APTA) and the
National Association of Realtors (NAR). Data in the study reveals that during
the last recession, residential property values performed 42 percent better on
average if they were located near public transportation with high-frequency
service. "When homes are located near public transportation, they are
among the most valuable and desirable in the area," said APTA President
and CEO Michael Melaniphy. "This study shows that consumers are choosing
neighborhoods with high-frequency public transportation because it provides
access to up to five times as many jobs per square mile as compared to other
areas in a given region. Other attractive amenities in these neighborhoods include
lower transportation costs, walkable areas and robust transportation
choices." "Higher home values reflect greater market demand for areas
near public transportation," said NAR Chief Economist Lawrence Yun.
"Transportation plays an important role in real estate and housing
decisions, and the data suggests that residential real-estate near public
transit will remain attractive to buyers going forward. A sound transportation
system not only benefits individual property owners, but also creates the
foundation for a community's long-term economic wellbeing." The study, The
New Real-Estate Mantra: Location near Public Transportation, investigates how
well residential properties located in a half-mile proximity to high-frequency
public transportation or in the "public transit shed" have performed
in holding their value during the recession compared to other properties in a
given region. While residential property values declined substantially between
2006 to 2011, properties close to public transit showed significantly stronger
resiliency. The following are a few examples from the study: In Boston,
residential property in the rapid transit area outperformed other properties in
the region by an incredible 129 percent. Source: APTA and NAR
Data through March 2013, released by S&P Dow Jones
Indices for its S&P/Case-Shiller Home Price Indices showed that all three
composites posted double-digit annual increases. The 10-City and 20-City
Composites increased by 10.3 percent and 10.9 percent in the year to March with
the national composite rising by 10.2 percent in the last four quarters. All 20
cities posted positive year-over-year growth. In the first quarter of 2013, the
national composite rose by 1.2 percent. On a monthly basis, the 10- and 20-City
Composites both posted increases of 1.4 percent. “Home prices continued to
climb,” said David M. Blitzer, chairman of the Index Committee at S&P
Dow Jones Indices. Home prices in all 20 cities posted annual gains for the
third month in a row. Twelve of the 20 saw prices rise at double-digit annual
growth. The National Index and the 10- and 20-City Composites posted their
highest annual returns since 2006. Other housing market data reported in recent
weeks confirm these strong trends: housing starts and permits, sales of new home
and existing homes continue to trend higher. The number of cities that showed
monthly gains increased to 15. Source: NMP Daily
Forty percent of Americans say now is a good time to
sell a home -- up from 30 percent last month and 16 percent just one year ago,
according to a new survey by Fannie Mae. Rising home prices are helping to
boost sellers’ confidence. "Sentiment toward selling a home appears
to be catching up with the strengthening housing market," says Doug
Duncan, chief economist at Fannie Mae. “This jump may foreshadow a gradual
return to more normal levels of housing supply from their lows of recent
months. In turn, increased housing supply could serve to
temper increasing consumer home price expectations.” With confidence
increasing, more sellers are listing their homes and inventory levels are
rising in many markets. Inventory levels are up nationally 4 percent in April
over the prior month, but in some markets inventories have soared even higher.
For example, California municipalities Stockton and Sacramento have seen
inventories rise more than 75 percent in April from the prior month, according
to realtor.com® data. As the number of homes for sale increases,
"homes are starting to sit a little bit longer," says Joanie Cubias of
Lyon Real Estate in Sacramento. Still, in markets where a large number of home
owners remain underwater on their mortgage, inventory levels remain low.
"We will closely watch the potential impact of rising mortgage rates on
consumer housing sentiment in the coming months," Duncan says. Source:
USA Today
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