Cities across the country have continued to post slight gains in prices over the past few months, and prices are expected to continue to rise in 2013. Buyers on the fence about purchasing need to get off the fence and get in the game! Now is the perfect time to get into a neighborhood or building that might otherwise be unattainable. But hurry! Below, some reasons prices will continue to rise.
Household formation is revving up. The U.S. is on track to add 1 million new households this year, up from 630,000 last year and an average of 570,000 over the past five years, according to economists at Bank of America. More new households=greater demand for homes.
Rents are rising. Falling mortgage rates and improving job growth didn’t do much for housing in 2011. Given the real estate market in previous years, buyers didn’t have much confidence or urgency. Rising rents have changed that. Initially, they spurred more investor purchases of properties that could be rented out. More recently, they’ve given buyers a reason to get off the fence.
The share of distressed sales, such as foreclosures, are down. Why are distressed sales falling? For one, mortgage delinquencies peaked 2½ years ago. Banks also slowed down foreclosures as a result of the robosigning scandal, and they’ve stepped up foreclosure alternatives, notably, by shifting short sales into a higher gear. The share of distressed sales is still high, historically speaking, but because they have fallen from their peak in many markets, prices have stabilized. States (like Georgia) that practice non-judicial foreclosure have seen large drops in the volume of outstanding bad debt.
I just had a potential client today ask me why a 1 bedroom in a certain condo building used to sell for $99,000 but now sells for $139,000. In short, the days of several foreclosure listings under $100,000 is over.
Inventories of homes for sale have plunged. Inventories of new homes for sale are at their lowest levels in nearly 50 years as builders sharply cut back construction over the past three years. Inventories of existing homes for sale are near a 10-year low, and down by one third over the past two years. Many homeowners have held back from selling because they owe more than their homes are worth, and even those with equity don’t want to accept big declines in prices.
Low inventories have led to more multiple offer situations, as rising demand leads more buyers to chase after fewer properties. In some markets, foreclosure discounts have disappeared.
We aren’t out of the dark yet. Credit standards are tight. Millions of homeowners are in some stage of foreclosure or default, and millions of others still owe more than their homes are worth. If the economy weakens again, the housing market could relapse.
Though the housing market hasn’t fully recovered, it is definitely healing.
(Source: wsj.com; N. Timiraos)
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