Surprisingly, economists generally agree that the housing market appears to be bottoming out this summer and should improve in 2013. Although home price increases are expected to be modest, and in some cities home prices are still declining, according to the S&P/Case-Shiller home price data, prices appear to be holding.
Despite Conference Board reports that consumer confidence dropped in August to the lowest level since late last year, a recent survey by Fannie Mae revealed that 73 percent of the 1,001 Americans asked believe that it is a good time to buy a home. Factors contributing to this are record low interest rates — in the mid-3 percent range in mid-July — and home prices at 2002 levels in some areas making housing more affordable.
Recent increases in rents and low vacancies also contribute to buyers once again favoring buying rather than renting. The Joint Center for Housing Studies at Harvard University recently released its "State of the Nation’s Housing" report, which reported that housing markets show "definitive signs of a turnaround." With low housing affordability and increasing rents, it’s now cheaper to own a home in many markets than rent the same home, according to the study.
With recent speculation suggesting that we could be headed for a recession, many prospective homebuyers are still not convinced that now is the time to buy a home. However, if rents are rising and the inventory of rentals on the market is very low, buying becomes an attractive option even though the economy may stumble.
Some economists suggest that the housing market has improved so much that it is no longer the drag on the economy it has been for the past six years. Homebuilders are building again, although some are building with an eye to renting rather than selling. Nevertheless, this puts more people to work and helps support the economy as was traditionally its role until the 2006 downturn.
A major factor in the improved housing market is the reduction of inventory of homes for sale. According to the most recent numbers from the National Association of Realtors (NAR), the inventory dropped nationally 23.8 percent from a year ago in July. Last July, there was a 9.3-month supply; in July 2012, supply dropped to 6.4 months. A six-month supply is considered to be a normal or balanced market.
HOUSE HUNTING TIP: National statistics are too general to rely on for determining whether your local market is stabilizing, moving up or declining. Even though the number of purchase contracts signed nationally in July was up 12.4 percent from a year ago, the percent of new contracts signed may have been fewer in your area. However, lower home sales don’t necessarily result in lower sale prices.
For example, the inventory of homes for sale in some areas of the San Francisco Bay Area is 50 percent lower than a year ago. Buyers who would love to buy now can’t find a home to buy and when they do, they often end up losing to another buyer in competition. According to NAR, there are tight inventory markets throughout the country.
Some of the markets that suffered the most during the housing recession are now the best places for sellers. A recent study by Zillow, a real estate information company, ranked the 50 largest metro areas to determine whether buyers or sellers had an advantage.
The top 10 seller’s markets included: San Jose, San Francisco, Las Vegas, Sacramento, Phoenix, Riverside, Washington, D.C., Los Angeles, Salt Lake City and Austin. According to Zillow, a seller’s market is not one in which prices are rising, but where price cuts are uncommon and homes sell for near their asking price. This is not to say that prices aren’t rising in some areas.
THE CLOSING: Chicago, Milwaukee and Cleveland are still buyer’s markets where homes take longer to sell and prices are often discounted.