This Month in Real Estate Newsletter For U.S and Canada Markets
Each month, This Month in Real Estate provides expert opinion and analysis on real estate trends across the United State. The aim of the consumer-oriented segments is to help Keller Williams Realty real estate agents combat the “doom and gloom” messages of the national print and television media with real information on the state of the real estate market.
Gradual progress in the housing market continues at a steady pace without government support. The market has shown remarkable improvement from the initial drop after the expiration of the home buyer tax credit this past July. Although higher-than-normal distressed sales skew the overall picture of home prices downward, inventory continues to shrink and sales continue to rise. The rock-bottom interest rates of 2010 are likely to trend upward. As economists anticipate rates at or above 6% by the end of 2012, buyers are moving off the sidelines and into the market.
A good sign for long-term market stability is that the median down payment on conventional mortgages has risen to 22%, up from 4% in 2006 and slightly above the 20% standard in the 1990s. This may keep buyers looking in slightly lower price ranges, but it is a good sign of future sustainability for homeowners and banks alike. There are still ample opportunities for those who would like down payments below 20%, including some conventional mortgages and those backed by the Federal Housing Administration, Veterans Affairs, and the Department of Agriculture’s Rural Development loans.
As the economy improves, stimulus efforts by the government and the Federal Reserve Board will gradually wind down, which typically means rising interest rates. Meanwhile, buyers continue to benefit from historically favorable buying conditions and sellers are encouraged by increased market stability.
Home Sales(in millions):
The increasing trend in existing home sales activity continued through January, and for the first time rose above year-ago levels when the home buyer tax credit was in effect. This marks the sixth monthly increase since July when the tax credit expired, and indicates a recovery that’s gaining a firmer footing without government support.
Home Price(in thousands ):
Home prices softened in January with median home prices decreasing slightly to $158,800 – 3.7% below the year-ago level. Contributing to this is a larger share of distressed homes sales, which accounted for 37% of sales in January compared to 30%-35% throughout much of 2010. Prices and mortgage rates remain favorable for buyers.
Inventory- Month’s Supply(in months):
The uptick in home sales and a shrinking inventory pared down the month’s supply to 7.6 months, a decrease of 7.3% from December and 1% from year-ago levels. This is the lowest level in more than a year and marks the first time since July that the month’s supply is below where it was the previous year. Months of inventory has declined steadily (64%) from its peak of 12.5 months in July and is now back to pre-tax credit expiration levels. The supply of inventory is not far from a seller’s market, which is less than 6 month’s supply.
Source: National Association of Realtors – housing data released Feb 23.
Mortgage rates jumped above 5% for the first time since April 2009 in January. While rates dipped back to just below 5%, they are expected to continue an upward trend throughout the year. As overall economic recovery remains on track, rates will likely rise to keep inflation in check. Buyers wanting to capture the savings in monthly payments that a historically low interest rate affords are expected to take advantage of excellent buying conditions.
Source: Freddie Mac, Rates as of Mar 3.
The housing market continues on a stable and balanced track. Sales activity is nearly 50% above the recessionary low of December 2008 and only 11% below the recovery high of December 2009. Home sales rose while prices remain on par with the previous month.
According to the Bank of Canada, the economy is picking up steam faster than anticipated. Late 2010 proved to be significantly stronger than expected, with consumers continuing to be a key component. A 17% jump in exports was the fastest-paced increase in more than five years. The strong currency is a potential concern as it makes importing Canadian exports more expensive for other countries. This metric will be closely monitored by economists and the Bank of Canada alike.
Moving forward, rising interest rates and weak job growth are factors that are responsible for keeping sales activity and price appreciation stable and slower than seen during the recovery. Mortgage regulation changes will likely spur upward momentum in home sales during the first quarter. Due to improved affordability, balanced markets, and record-low mortgage rates, there are ample opportunities for both buyers and sellers.
Home Sales(in thousands):
Resale housing activity increased 4.5% in January from December. Home sales have improved steadily since mid-2010, gaining 24% from the low in July. Sales have now reached the highest level since April. Historically low interest rates and a rush to buy before another round of mortgage-regulation tightening takes effect, particularly in the most expensive markets, will continue to support the market in the first quarter of 2011.
Average Home Price(in thousands):
The average home price in December was $343,675 – up 4.6% from a year ago and essentially unchanged since October. Prices rose or were stable in two-thirds of all markets on a year-over-year basis. Price stability is likely to continue as new listings pick up and interest rates are expected to increase.
The national housing market remained in balanced territory in January. The number of new listings rose by 4% – the biggest increase since May 2010. An expected increase in new listings in the spring and rising interest rates are likely to return many local area seller’s markets into balanced territory and further stabilize home prices.
Low interest rates and stabilizing home prices continue to open up homeownership to an increasing number of Canadians. As widespread global recovery gains further footing, rates will increase to combat inflation and keep it near the 2% target. In fact, rates already have come back up to last year’s level from record lows in December and January.
Sources: Conference Board, The Canadian Real Estate Association (CREA), Royal Bank of Canada, Canadian Mortgage and Housing Corporation, Bank of Canada. Home Sales for Jan released Feb 15.
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