What's Driving the Rise in Home Prices?

The Wall Street Journal recently cited five significant factors behind the rise in home prices, as numerous markets see significant year-over-year gains. The big price drives are: 

1. The rise in housing affordability - which is drawing more buyers out into the market who are looking to cash in on low mortgage rates and fallen home prices compared to a few years ago.

2. The rise in household formation - which is expected to hit 1 million new households this year. That is up from an average of 570,000 over the last five years, according to data by Bank of America Merrill Lynch.

3. The rise in rents - which has prompted more investors to purchase properties to rent out and more renters to second-guess why they are paying so much in rent when they could buy.

4. The decline in distressed sales and foreclosures - which has fallen significantly this past year. While distressed sales are still high by historical standards, they have fallen from their peaks in most markets, helping to alleviate the downward pressure on home prices in many areas.

5. Inventories of homes for-sale are at their lowest levels in nearly 50 years - and builders have cut back on construction and many home owners are waiting to sell until they can recover some equity on their properties. 

Source: “Five Reasons Home Prices Have Been Rising,” The Wall Street Journal (Nov. 27, 2012)

Homes Are Selling Faster

Inventories of for-sale homes aren’t the only thing that is dropping. The amount of time homes are staying on the market is growing shorter as well—down 11 percent in the last year—according to the latest Realtor.com data.

Homes were listed on average 95 days, according to September housing data. That is down from 107 days a year earlier. 

As the median age of the inventory is falling, inventories of for-sale homes continue to hover at record lows too, dropping 18 percent last month compared to a year ago.

“There’s a recovery,” Curt Beardsley, vice president of Realtor.com, told BusinessWeek. “Our market times are low and there’s actually a compression of inventory.”

Home buyer demand is increasing, with housing affordability still high and ultra low mortgage rates that have pushed home buyers’ purchasing power higher. The rise in demand has caused asking prices to also rise. Last month, the median asking price was $191,500, which is up 0.8 percent compared to a year earlier, Realtor.com reports. 

Source: "Listings of Homes for Sale Drop as U.S. Housing Recovers," BusinessWeek (Oct. 15, 2012) and REALTOR® Magazine Daily News

Housing Recovery Expanding

The recovery in the housing market is showing itself beyond just rising new and existing-home sales and home price increases.

Home builder stocks, for example, have become srovme inome of the strongest performers of the year in the stock market. Some home builder stocks, like Pulte Group, have even more than doubled in the last year.

With home prices showing signs of stabilizing or even rising too, more home owners also are investing in their homes, either remodeling or purchasing new furniture or appliances, says Brian E. Peery, co-manager of the Hennessy Cornerstone Growth fund. For example, home improvement items like cabinets and plumbing fixtures are seeing sales volumes rebound.

Home Equity on the Rise

Rising home values are helping more home owners to find equity in their homes, according to the September Housing Scorecard from the Obama administration. 

Home equity is at its highest level since the third quarter of 2008 and has risen by $860 billion since the end of 2011, according to the report. The rise in equity has helped lift 1.3 million families from being underwater, or owing more on their mortgage than their home is currently worth. 

Vote Yes! Florida Amendment 4

Amendment 4 is a constitutional amendment on Florida's ballot this year.  This proposal will lower property taxes for new homebuyers and spur much-needed economic growth in the housing market by offering a healthy new exemption for first-time homebuyers.  Amendment 4 will also protect working families, small businesses and homeowners from unfair and unexpected tax increases by helping to stop "recapture," a tax gimmick that increases property taxes even when property values decline.  Finally, Amendment 4 will lower assessment increases on non-homestead properties from a burdensome 10 percent to a more reasonable 5 percent.

Bottom Line

• Amendment 4 creates an additional homestead exemption for first-time homebuyers for 5 years.
• Amendment 4 protects Floridians from increased property taxes when their property values have declined.
• Amendment 4 lowers the maximum yearly assessment increase on non-homestead properties from 10 percent to 5 percent.

Additional information from Florida Realtors®

Mortgage Back to Record Lows

Fixed-rate mortgages are back at all-time record lows or hovering near them, Freddie Mac reports in its weekly mortgage market survey. For those who can qualify for a loan, the ultra-low mortgage rates are pushing housing affordability higher. 

"Following the Federal Reserve's announcement of a new bond purchase plan, yields on mortgage-backed securities fell, bringing average fixed mortgage rates to their all-time record lows, which should aid in the ongoing housing recovery,” says Frank Nothaft, Freddie Mac’s chief economist. 

Here’s a closer look at the national averages with mortgage rates for the week ending Sept. 20:

Housing Prices Hit Bottom

Economists are increasingly confident that home prices have bottomed out. 

For the last three years, home prices have usually risen in the spring and summer to only then lose all of those increases—plus more—in the fall and winter months. However, economists expect this year to be different and do not foresee such a big drop to occur to home prices in the colder months ahead, The Wall Street Journal reports.