Home Sales Jump, But What Does that Mean for Real Estate Market
In April we posted an article called Awesome News for Buyers, Awful News for Sellers which stated that the housing market has started to recover, but still had a long way to go. Almost 5 months later, it appears that is still the case.
The National Association of Realtors shares that sales of existing homes rose 7.7% last month to an annual rate of 5.03 million homes, from 4.67 million homes in July. Homes at risk of foreclosure made up 31 percent of sales, up from 29 percent in July. And many of the sales went to investors, who are increasingly buying homes priced under $100,000. “Home prices have cratered since the start of the recession, and mortgage rates have also been very low. Meaning the best housing affordability conditions in a generation,” said Ron Phipps, president of NAR, in a written statement.
The recent S&P/Case-Shiller home price index stated the U.S. National Home Price Index increased by 3.6% in the second quarter of 2011, after having fallen 4.1% in the first quarter of 2011; meaning that nationally, home prices are back to their early 2003 levels. Additionally “nineteen of the 20 MSAs (metropolitan statistical areas) and both Composites were up in June over May. Portland was flat. Cleveland has improved enough that average home prices in this market are back above its January 2000 levels. Only Detroit and Las Vegas remain below those levels,” according to David M. Blitzer, Chairman of the Index Committee at S&P Indices.
While this is good news to hear, there are still other factors to take into consideration before throwing a celebratory party. Home buyers are still struggling against a very tight credit market, as banks have pulled back on lending. Probably due to the new maximum loan limits by government-controlled mortgage buyers Fannie Mae and Freddie Mac. According to the News Tribune, on October 1, the maximum loan in high-cost areas will fall from $729,750 to $625,500 and, in some areas, to $550,000; meaning some buyers will be unable to get mortgages in cities where homes are more expensive, such as New York, San Francisco, and Washington, DC.
“The biggest factors keeping home sales from a healthy recovery are mortgages being denied to creditworthy buyers, and appraised valuations below the negotiated price,” said Phipps.
So conclusions could be made that the sales of existing homes are increasing, reducing the inventory and the price index increasing is great; and given the low mortgage rates it appears that now is still a great time to buy. But bottom line is the real estate market still has a way to go for a full recovery.