The 2012 Housing Market: What's Really Happening Out There
(Please note: "Distressed" properties are short sales and bank-owned homes. "Non-distressed" properties are those unaffected by foreclosure or negative equity.)
Pending Sales Are Up, and Organic Demand Is Back
This is good news for anyone thinking of listing a home this year. Pending sales in January of 2012 were 8 percent higher than they were a year previously, and at the highest level since April of 2010, according to the National Association of Realtors (NAR). Those facts are especially significant for two reasons:
- Pending sales in April 2010 were strongly driven by the Home Buyer Tax Credit. This year there is no artificial stimulus fueling demand.
- January is typically a less active month than April in terms of pending sales.
The historical pattern is for pending sales to increase as we head into spring, so it will be interesting to see what the numbers show in a few months. Regardless of what else happens, expect the media to sound at least a little less cynical by then. :)
Inventory Is Down, and Closed Home Sales Are Up
The number of homes available for sale nationwide in January was 20.6 percent lower than in January of 2011. The inventory level of existing homes was at 6.1 months remaining, while the new home inventory level was the lowest since January 2006, with 5.6 months remaining.
(The "months of inventory remaining" measures how long it would take to liquidate all currently available inventory at the present rate of sales. Between 3 and 6 months of inventory is generally considered to be a balanced market.)
Sales of existing homes rose 3.8 percent year-to-year in January, and new homes sales were up 3.5 percent, according to a recent NAR report. Existing condominium sales broke the trend with a 10.3 percent drop compared to January 2011.
Prices Are Still Down, Although Condos Show a Perk
The median price of an existing home in the U.S. was $154,400 in January, down 2.6 percent compared to the year before. The median price of a new home was $217,100, down 9.6 percent.
Although condominium sales were down year-to-year, the median price of sold condos rose 2 percent, to $156,600.
Distressed Sales Are a Different Market
Short sales and bank-owned homes tend to sell for significantly less than non-distressed homes.
Since April 2006: According to a recent CoreLogic report, while prices of all properties (distressed and non-distressed) combined have dropped 34 percent, prices of just non-distressed homes dropped 24.2 percent during that same period.
January 2011 to January 2012: Prices of all properties combined dropped 3.1 percent. Non-distressed home prices decreased by .9 percent.
December 2011 to January 2012: Prices of all properties combined dropped 1 percent. Non-distressed home prices actually increased by .7 percent.
Who's Buying, and What's Selling?
First-time buyers made up 33 percent of the market in January of 2012, up from 29 percent in January of 2011, according to a recent NAR report. The number of investors remained unchanged at 23 percent.
Distressed homes accounted for 35 percent of all homes sold in January, down from 37 percent a year previously. Of these, 22 percent were bank-owned and 13 percent were short sales.
Thirty-one percent of home sales in January were all-cash, down just slightly from 32 percent in January of 2011.
Negative Equity Is Still a Big Problem
CoreLogic's March report on home equity levels in the U.S. showed that 22.8 percent of all residential homes with mortgages were in negative equity by the end of 2011, meaning that the home was worth less than the amount owed on it. Another 5.7 percent of homeowners had less than 5 percent equity.
Low and negative equity situations restrict the housing market by making it difficult for homeowners to sell without bringing money to closing.
Note: Negative equity does not mean that the homeowner is behind on payments or in danger of foreclosure, it is simply a measure of the amount owed on the property. Also, approximately one-third of U.S. homes are owned free and clear.
Spin Factor Remains (It's Safer to Sound Jaded)
One expert or another has been incorrectly calling the bottom of the housing market for the past four years, so it's understandable that economists and journalists are very careful about what they say now. Unfortunately, some are so afraid of coming across as overly optimistic that logic appears to fall by the wayside.
For example, after years of stating (correctly) that distressed home sales were pulling down overall home prices, CNBC's popular Realty Check blog recently tried to explain why having fewer distressed properties on the market was now also going to put downward pressure on prices.
(They did admit to throwing the fundamental concept of supply and demand out the window during that blog post, but didn't seem to feel too badly about it.)
Another common mistake is to take the monthly Case-Shiller housing price report as a representation of the current market. Because of the way the data are collected and distributed, Case-Shiller housing price reports reflect decisions made by home buyers and sellers three to six months ago, for the most part.
Buffett and Trump Say It's Time to Buy
Warren Buffett made headlines at the end of February when he stated on CNBC's Squawk Box that if he had a way to manage them efficiently, he would buy "a couple hundred thousand single family homes."
According to Buffett, buying a home with a 30-year mortgage to live in for the next 5 to 10 years, or purchasing several to use as rentals, was "as attractive an investment as you can make now."
Donald Trump made news the next day by telling CNBC that "Housing is one of the great investments right now. I tell people all the time when they come up to me, they say, "What should I do, Mr. Trump?" I say go buy a house."
Interest Rates Are Still Historically Low
We've been using the term "historically low" to describe interest rates for so long that it's almost a cliche, but they keep descending to levels that are, well, historically low. :) Currently the rate is hovering under 4 percent for a 30-year fixed mortgage. You can click on the graph below to pull up the most recent rates on BankRate.com.
The Bottom Line
No one expects a full housing recovery to be a fast or easy road. There are still many foreclosures in the pipeline, and even Warren Buffett cautioned that we could see unemployment creep back up past the current 8.3 percent level before things finally stabilize. However, employment and consumer confidence numbers have come in better than analysts' expectations in recent months, and both have a huge effect on real estate.
So, while no one can predict the future (and nearly everyone is afraid to call the bottom of the housing market), there appears to be a growing consensus that many regional markets provide good opportunities to purchase right now, and lower inventory levels make it a better environment for sellers than it was a year ago.
Are you curious about the current market value of your home, or thinking of buying property this year? If so, please give me a call! I'll be happy to provide you with any information or assistance you may need.
(What the lawyers make us say: The information in this newsletter is deemed reliable but not guaranteed. Please always consult a qualified expert before making decisions based on this content. Nothing in this article is meant to be taken as expert legal, financial, or medical advice.)