20 November 2012
Housing continues to make a comeback following the real estate depression of 2007 through 2011. Job growth (albeit tepid), rising rents and population growth are the trifecta to increased sales and prices. October 2012 saw a Seasonally-Adjusted Annualized Sales Rate (SAAR) of 4.79 million existing homes, a gain of more than 10 percent from October 2011. Prices also increased year-over-year, with the monthly median rising 11.1 percent to $178,600. The latest 12-month moving average median sales price of $172,800 (and calculating the 12-month average gets rid of the monthly noise in the data—so it is a superior measure) is 4.4 percent greater than the 12-month moving average of $165,660 in October 2011. So home prices, on average across the country, are up 4.4 percent in the past year. And that is a great return in today’s economic environment where the current yield on a 10-year Treasury is 1.61 percent—and you can’t live in that security instrument.
The number of months of inventory continued its slow fluttering descent, dipping to 5.4 months (we believe that six months of inventory is normal for existing homes, and that inventory less than this rate results in rising home prices—confirmed once again this past month).
- 12 percent of October sales were foreclosures marketed at an average discount of 20 percent compared to non-distressed properties sales
- 12 percent of October transactions were short sales closed at a typical discount of 14 percent compared to non-distressed transactions
- October’s inventory of 2.14 million listings (5.4 months of supply at the current sales rate) was the least since February 2006 and has declined 21.9 percent in past 12 months
- Homeowner’s equity in housing increased $760 billion in the prior 12 months, with NAR’s Chief Economist Lawrence Yun forecasting a gain of $1 trillion in 2013 (which each month reduces the number of underwater homeowners)
- One-third of the homes (32 percent) sold in October had been on the market less than one month and one-fifth had been listed for six-months or more
- First-time homebuyers (a prerequisite for the move-up market) made up 31 percent of all October 2012 sales
- All-cash purchases, which in normal times represents from 12 to 14 percent of the market, made up 29 percent of all October closings
Once again the story is less-than-normal inventory, as shown in the following graph. The line indicates the normal six-month inventory level.
The number of home sales continues to rebound, as shown in the next graph, featuring a 12-month moving average of SAAR of sales. One of the issues now is to define the new normal. Increased down payment requirements, desiring but credit-unworthy buyers, and a return to more stringent mortgage loan underwriting standards, without question, has reduced the number of sales that had occurred in the past under equal economic conditions. Perhaps the last normal period we had was 2002, a time after the recession of 2001 and prior to the significant increase in subprime lending. That said, 5.4 to 5.5 million existing home sales annually may be where we are heading. All will agree that the seven million home sales observed in 2006 was not sustainable.
The last graph shows the 12-month moving average of median prices. Despite the 4.4 percent 12-month increase, current price levels are on average 23 percent less than the peak price of $224,350 posted in July 2006. But they are rising at a strong trajectory.
To read the entire press release from the National Association of Realtors® click http://www.realtor.org/news-releases/2012/10/existing-home-sales-rise-in-october-with-ongoing-price-and-equity-gains
The bottom line is that housing continues to recover with shrinking inventory setting the stage for ongoing price increases.