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Are Home Prices Increasing?

Posted by:  Chip Poli
2012-09-10 13:45:43

For many home owners and prospective home buyers this is an incredibly important question.

For a homeowner, this is an important topic because many are sitting on the sidelines waiting for an opportunity to refinance or possibly even sell their home.

For a first time home buyer this topic is equally important as many are watching home prices in order to pick the perfect time to strike.

Well, the perfect time is here and it may just pass you by.

According to CoreLogic:

In July 2012, prices of existing homes, distressed and non-distressed, jumped for the fifth straight month and enjoyed a 3.8% increase over July 2011.

When distressed home sales are stripped form the number, home prices jumped 4.3% over July 2011.

[note color="#fbf6c6"]Distressed – A property that has been taken in foreclosure and resold.

Non-Distressed – A property that was sold by a traditional homeowner and not by a bank.[/note]

The numbers for August 2012 are not yet released however most experts expect an increase of 0.6% over July. This would make August the sixth straight month of gains in home prices.

Even more impressive, the July increase in home values is the largest increase the US Housing Market has seen since July of 2006.

Of the Top 100 Metro Statistical Areas in the US only 23 markets showed a decrease on a year over year basis. This would indicate that 23% of the country is not out of the woods in terms of home values, the good news is 77% is on a very positive trajectory.

Home Values Rise and Unemployment Remains Steady

According to the US Bureau of Labor Statistics, the Jobless Rate has held steady at a rate of 8.1% in August and has remained in a tight range of 8.1% and 8.3% for the entire year of 2012.

So, why are we seeing improvement in housing prices while the unemployment rate remains steady and pretty dismal?

It is widely believed that housing will lag with unemployment and this is true to an extent.

However, there are a number of factors that are contributing to an improved housing market.

Exceptionally Low Interest Rates – The most important factor is the overall interest rate environment. Simply put, mortgage interest rates are incredibly low. Historically a mortgage rate of 6% was considered a great rate. Rates on long term fixed rate mortgages have been hovering near half of that for the last few months.

[caption id="attachment_1937" align="aligncenter" width="554"]5 Year Chart of Long Term Fixed Rate Bond Yields 5 Year Chart of Long Term Fixed Rate Bond Yields[/caption]

The monthly principle and interest expense of a $200,000 mortgage has been drastically reduced during this period of low mortgage rates.

$200,000 mortgage at 6.0% = $1,199.10 / month

$200,000 mortgage at 3.0% = $843.21 / month

A home buyer can now get a $200,000 mortgage at a historical discount of $355.89 per month.

Improving Access to Mortgage Capital – Since late 2007 many prospective home buyers have been on the sideline with the pre-conceived notion that banks aren’t lending. This simply isn’t true, at least not anymore.

Lenders of all sizes are loosening their standards and have been for the last two years. The appetite for mortgage business is strong at banks and mortgage lenders. There are also new programs to take advantage of and the guidelines of existing programs have loosened considerably.

At Poli Mortgage Group, we have launched many new programs just this year.

Why Home Prices are Rising

Raw Supply and Demand – During the period 2003 thru 2007 home builders of all sizes were over-building many areas of the country. Take into consideration that these overbuilt areas have now had 5 years to at least partially stabilize. The stabilization has amounted to millions of new buyers and very few new homes.

Clearing of Distressed Properties – The foreclosure avalanche that occurred between 2006 and 2009 has largely been cleaned out of bank inventory and banks have learned to modify mortgages as opposed to simply foreclose.

All of these factors are simultaneously contributing to strong gains in home values.

In Conclusion

If you’re waiting for values to increase in order to get the highest amount for your home, sit tight and remain patient. The end of 2012 will most likely be somewhat slow in home prices as winter sets into many parts of the country. Winter is historically a slower period for home sales.

If you’re a prospective buyer waiting for the bottom of the market, you may be witnessing the bottom right here and now. It is highly unlikely that the pent up demand for homes will slow down over the next couple years.

However, it would be foolish advice to sit and watch. Interest rates have never been this low during any period in American history. A buyer who sits and waits until Spring of 2013 could be hit with two types on increases. 1) and increase in home prices and 2) an increase in interest rates.

Never bought a home before?

Get the basics here: Pragmatic Guide to Buying A Home

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