Fourth Quarter Metro Area Home Prices Show Strongest Performance in Seven Years

A growing number of metropolitan areas had higher median home prices in the fourth quarter, with the national price showing the strongest year-over-year increase in seven years, according to the latest quarterly report by the National Association of Realtors®. A companion report shows record high housing affordability conditions for metro areas in 2012.

Lawrence Yun , NAR chief economist, said all the conditions for strong price growth are at play. “Home sales are on a sustained uptrend, mortgage interest rates are hovering near record lows and unsold inventory is at the lowest level in 12 years,” he said. “Home sales are being fueled by a pent-up demand and job creation, along with still favorable affordability conditions and rents rising at faster rates. Our population has been growing faster than overall housing stock, so supply and demand dynamics are very much at play.” Yun added that more housing construction is needed to relieve some of the pressure in the market and keep home prices from overheating.

The national median existing single-family home price was $178,900 in the fourth quarter, up 10.0 percent from $162,600 in the fourth quarter of 2011, which is the strongest year-over-year price increase since the fourth quarter of 2005 when the median price jumped 13.6 percent. In the third quarter the price rose 8.8 percent from a year earlier.

The median price is where half of the homes sold for more and half sold for less; medians are more typical than average prices, which are skewed higher by a relatively small share of upper-end transactions.

A shrinking market share of lower priced homes continues to account for some of the price growth.

According to Freddie Mac, the national commitment rate on a 30-year conventional fixed-rate mortgage averaged a record low 3.36 percent in the fourth quarter, down from 3.54 percent in the third quarter and 4.01 percent in the fourth quarter of 2011.

“The housing affordability index shows that the national median income of families was almost double the income needed to buy a median-priced home in 2012, so most buyers are able to stay well within their means,” Yun said. “Even with rising home prices, conditions are expected to stay very favorable with the index averaging 161 in 2013, which would be the third best on record.”

Things are certainly favorable yet for buying a home – housing affordability and the lowest interest rates.

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