While the economy improves, stimulus efforts by the government and the Federal Reserve Board will gradually wind down, which typically spurs rising interest rates. Meanwhile, buyers continue to benefit from historically favorable buying conditions and sellers are encouraged by increased market stability.
Gradual and uneven progress in the housing market continues 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 remains at pretax credit expiration levels. 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.
Recent reports suggest the economy is picking up steam even though it is not yet fully reflected in the job market. In terms of economic growth, America outpaces all the other G7 nations except Canada. However, when it comes to adding back jobs, America is the weakest. During the recession, businesses looked for ways to increase efficiency and productivity. U.S. productivity, or output per worker, doubled in both of the past two years. A full housing recovery depends on growing employment. Without jobs, most Americans cannot buy new homes or afford their current ones. As the economy continues to pick up steam, employment will likely follow suit as there is a limited amount of productivity workers can provide.
Interest Rates
Throughout the month, rates hovered in the 4.8%-4.9% range. After rising above 5% for the first time in about ten months in early February, rates have come back below but are expected to follow an upward trend throughout the year. As the 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.
Home Sales
Although home sales have fallen 9.6% compared to the previous month, they remain close to last year’s levels, showing only a 2.8% decline. The unseasonably cold weather across much of the country during late January and February could have kept buyers indoors more so than normal. Gradual improvement with bumps along the way has long been the anticipated road to full recovery. In fact, home sales remain 26.4% above the low last July. As Lawrence Yun, chief economist of the National Association of Realtors explains “month-to-month movements can be instructive, but in this uneven recovery, it’s important to look at the long-term performance.”
Home Prices
Home prices continued to soften in January with median home prices decreasing to $156,100. This is 5.2% below the year-ago level and brings the median price close to February 2002 levels. Two out of every five homes sold during February, or 40% of sales, were distressed properties. Distressed sales often sell for 10%-20% less than traditional home sales. The decline in home prices is less reflective of the value of individual homes and more reflective of the bargains that a record level of all-cash buyers and investors are snapping up. Prices and mortgage rates remain favorable for buyers as the spring selling season starts.
Inventory
The slowing of home sales and an increase in listings pushed the months’ supply up to 8.6 months, an increase of 15% from the previous month and 2% year over year. This is the third-lowest level since June. Months of inventory remain 31% below its peak of 12.5 months in July and is now back to pretax credit expiration levels. With the summer selling season approaching quickly, experts anticipate more homes to go on the market in the coming months.
For further clarification of any of your real estate questions, please do not hesitate to call me or any member of the Barb Bottitta Team at 610-398-8408. Each and every person’s needs are unique, and determining if now is the right time for you to buy or sell a home can be addressed.
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