Second Quarter Metro Area Home Prices Rise, Limited Inventory Capping Sales

WASHINGTON — Median existing single-family home prices are rising in more metropolitan areas, but a lack of inventory – notably in lower price ranges – is limiting buyer choices in an increasing number of markets around the country, according to the second quarter 2012 report by the National Association of Realtors.

The median existing single-family home price rose in 110 out of 147 metropolitan statistical areas1 (MSAs) based on closings in the second quarter in comparison with same quarter in 2011; three areas were unchanged and 34 had price declines.  In the first quarter of 2012 there were 74 areas showing price gains from a year earlier, while in the second quarter of 2011 only 41 metros were up.

A separate breakout of income requirements to buy a home on a metro basis shows a wide range of conditions, but most buyers had ample income in the second quarter assuming they could meet mortgage credit standards.

 Lawrence Yun, NAR chief economist, said home prices are set to rise in even more markets during upcoming quarters.  “It’s most encouraging to see a growing number of metro areas with rising median prices, which is improving the equity position of existing homeowners.  Inventory has been trending down and home builders are still under-producing in relation to growing demand,” he said.  “Some of the improvement in prices is due to a smaller share of sales in low price ranges where inventory is tight.”

 The national median existing single-family home price was $181,500 in the second quarter, up 7.3 percent from $169,100 in the second quarter of 2011.  This is the strongest year-over-year increase since the first quarter of 2006 when the median price rose 9.4 percent, but even with the gain the current price is 20.1 percent below the record set in 2006.

The median price is where half sold for more and half sold for less; medians are more typical than average prices, which are skewed higher by a relatively small share of upper-end transactions.

Distressed homes – foreclosures and short sales which sold at deep discounts – accounted for 26 percent of second quarter sales, down from 33 percent a year ago.

Total existing-home sales,3 including single-family and condo, slipped 0.7 percent to a seasonally adjusted annual rate of 4.54 million in the second quarter from 4.57 million in the first quarter, but were 8.6 percent above the 4.18 million pace during the second quarter of 2011.

At the end of the second quarter there were 2.39 million existing homes available for sale, which is 24.4 percent below the close of the second quarter of 2011 when there were 3.16 million homes on the market.  There has been a steady downtrend since inventories set a record of 4.04 million in the summer of 2007.

According to Freddie Mac, the national commitment rate on a 30-year conventional fixed-rate mortgage averaged a record low 3.80 percent in the second quarter, down from 3.92 percent in the first quarter and 4.66 percent in the second quarter of 2011.

NAR President Moe Veissi, broker-owner of Veissi & Associates Inc., in Miami, said buying power is historically high.  “Home buyers today can stay well within their means.  Record low mortgage interest rates and an over-correction in home prices have opened the door to many potential buyers,” he said.

“What we need now is additional inventory in the lower price ranges, so we hope banks will be releasing more foreclosure inventory into the market.  With gains apparent in all of the price measures, banks also should have more confidence in expanding mortgage credit to home buyers using safe but sensible standards,” Veissi said.

A breakout of incomes needed to purchase a median-priced existing single-family home by metro area shows the typical buyer has ample income.  Required income amounts are determined using several downpayment percentages, assuming a mortgage interest rate of 4 percent and 25 percent of gross income devoted to mortgage principal and interest.

The national median family income4 was $61,000 in the second quarter.  However, to purchase a home at the national median price, a buyer making a 5 percent downpayment would only need an income of $39,900.  With a 10 percent downpayment the required income is $37,800, while with 20 percent down the necessary income is $33,600.

“Because the income required to buy to a typical home is very manageable by historical standards, any further decline in mortgage interest rates will have little effect.  Changes in underwriting guidelines would have a far greater impact,” Yun said.

In the condo sector, metro area condominium and cooperative prices – covering changes in 53 metro areas – showed the national median existing-condo price was $178,000 in the second quarter, up 7.5 percent from the second quarter of 2011.  Twenty-nine metros showed increases in their median condo price from a year ago and 24 areas had declines.

First-time buyers purchased 34 percent of all homes in the second quarter, compared with 33 percent in the first quarter and 35 percent in the second quarter of 2011.  Historically they are close to 40 percent of the market.

The share of all-cash home purchases was 29 percent in the second quarter, down from 32 percent in the first quarter; it was 30 percent in the second quarter of 2011.  Investors, who make up the bulk of cash purchasers and compete with first-time buyers, accounted for 19 percent of all transactions in the second quarter, down from 22 percent in the first quarter; they were 19 percent a year ago.

Regionally, existing-home sales in the Northeast slipped 0.6 percent in the second quarter but are 10.6 percent above the second quarter of 2011.  The median existing single-family home price in the Northeast declined 1.6 percent to $241,300 in the second quarter from a year ago.

In the Midwest, existing-home sales rose 1.3 percent in the second quarter and are 16.2 percent higher than a year ago.  The median existing single-family home price in the Midwest rose 7.5 percent to $149,400 in the second quarter from the same quarter in 2011.

Existing-home sales in the South increased 1.3 percent in the second quarter and are 7.7 percent above the second quarter of 2011.  The regional median existing single-family home price increased 7.4 percent to $163,200 in the second quarter from a year earlier.

With tight inventory, existing-home sales in the West fell 5.3 percent in the second quarter but are 3.0 percent higher than a year ago.  The median existing single-family home price in the West jumped 13.4 percent to $234,000 in the second quarter from the second quarter of 2011.  “Inventory is pretty tight in all prices ranges in most of the West except for the upper end, which accounts for the sharp price gain,” Yun noted.

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