With spring in full bloom, there is growing evidence that the nation’s housing market is shaking off its long hibernation and heating up once again. Several recent industry studies have shown that home prices are stabilizing across the country and that the U.S. housing market may have already begun a turnaround.
This comes as welcome news for buyers, homeowners and potential sellers. Some prospective buyers have been waiting for the “all-clear” signal that the downturn is over before jumping back into the market. And all homeowners, of course, have to be encouraged by stabilizing prices and signs that demand for real estate is accelerating once again.
One of the most followed analysts of the nation’s housing market issued a new report this month entitled: Housing Markets Stabilizing, Affordability at 40-Year High. The Fiserv Case-Shiller analysis of home price trends in more than 380 U.S. markets found that the majority either rose slightly year-over-year or had very modest declines -– the smallest since the housing recession began.
“Nearly all non-price metrics – existing home sales, rising home order volumes, increased spending on home improvement, a jump in multi-family construction – indicate that the housing sector hit bottom last year and has started along a path of slow recovery,” says David Stiff, chief economist, Fiserv.
Fiserv said the rebound in the market will be driven by investors who buy primarily in lower-cost markets, and then spread to the rest of the market segments. The firm expects that home prices, which it says generally lag sales activity by nine to 12 months, “will stabilize by the end of this summer and then rise at an annualized rate of 3.9 percent over the next five years.”
Nationwide, home prices are roughly 35 percent lower than their peak in the first quarter of 2006. Due to this “unprecedented decline and record-low mortgage rates,” Fiserv noted, “affordability has improved dramatically.”
The monthly payment for a median-priced home using a conventional 30-year mortgage now represents just 12 percent of median-family income – the lowest percentage on record (since 1971), the firm said.
Analysts at Fiserv say record-level affordability will eventually bring more first-time and trade-up buyers back into the housing market, especially as the cost of renting an apartment continues to increase and new households are formed. In many parts of the country, it is now actually cheaper to buy a median priced home and build up equity than to pay rent to a landlord each month!
No doubt the housing downturn and resulting drop in home equity were contributors to the recent recession. “However, very low prices have also started to draw in more buyers,” Fiserv said. “As demand for houses ramps up, construction activity will increase and residential investment will begin to make a substantial contribution to the recovery and GDP overall.”
Other widely followed industry analysts and media outlets are also growing more bullish on the housing market. For example, a recent Forbes magazine article declared, Home Prices Are Stabilizing, Signifying A Housing Market Bottom.
In the article, Forbes reporter Morgan Brennan says that data from a variety of research firms “reinforces a notion already asserted by many an economist, real estate agent and Wall Street Investor that 2012 is the year of the bottom.”
The law of supply and demand seems to be at work here. While the economy steadily improves and buyer demand grows, housing inventory levels have been steadily declining. Forbes reports that at the end of the first quarter this year, “there were 2.4 million existing homes on the market, nearly 22 percent less than last year.”
The shrinking inventory levels have actually led to bidding wars and upward pressure on prices in some areas. We’ve seen that in some parts of the Bay Area, where attractively priced homes in good neighborhoods often attract three, five, or even more offers and often sell for over the asking price.
JP Morgan CEO Jamie Dimon, in his annual letter to investors, joined the chorus of housing market bulls. Dimon noted the dwindling supply of homes and condos for sale as one of nine reasons why he believes the housing market has reached a turning point.
As inventory of homes available for sale has been steadily declining, the U.S. population has grown by 3 million people per year since the housing crisis began four years ago, Dimon points out. At that growth rate, there would typically be a need for 1.2 million additional housing units, but builders are producing far fewer homes today.
As the job market continues to improve, demand for housing will quickly outpace supply, Dimon argues.
According to Forbes’ sources, completed home sales jumped 4.7 percent in the first quarter of 2012 and pending homes sales rose 12.8 percent since March 2011. Forbes reported that. “As inventory levels continue to tighten, a recovery, however nascent, can begin to materialize.”
Growing sales and a shortage of inventory are already having an impact on prices. The National Association of Realtors reported that in the first quarter of 2012, the median existing single-family home price rose in 74 of the 146 metro areas that the association follows. By comparison, in the fourth quarter of last year only 29 metro areas saw price increases.
Real estate research firm CoreLogic released data this month showing that home prices nationwide, including distressed sales, rose 0.6 percent from February to March for the first month-over-month increase since last summer.
Mark Fleming, the chief economist for CoreLogic has reported that “This spring the housing market is responding to an improving balance between real estate supply and demand, which is causing stabilization in house prices.”
While there have been signs of a balancing market the past couple of years, Fleming said the difference this year is that stabilization is occurring without the support of tax credits and in spite of fewer distressed sales.
So where does this all leave us? If you’ve been waiting for the “all-clear signal” to get into the market, the time may be here. While no one knows for sure when a turnaround happens until after it happens, there is growing evidence that the housing market has indeed begun to rebound.
If you’ve been thinking about taking advantage of record affordability and attractive home prices, now is the time. Coldwell Banker Residential Brokerage is ready to help you get into the home of your dreams while the market is still in your favor.