Second Quarter Metro Area Home Prices Rise, Limited Inventory Capping Sales

Median existing single-family home prices are rising in more metropolitan areas, but a lack of inventory – notably in lower price ranges – is limiting buyer choices in an increasing number of markets around the country, according to the latest quarterly report by the National Association of Realtors®.

The median existing single-family home price rose in 110 out of 147 metropolitan statistical areas1 (MSAs) based on closings in the second quarter in comparison with same quarter in 2011; three areas were unchanged and 34 had price declines.  In the first quarter of 2012 there were 74 areas showing price gains from a year earlier, while in the second quarter of 2011 only 41 metros were up.

A separate breakout of income requirements to buy a home on a metro basis shows a wide range of conditions, but most buyers had ample income in the second quarter assuming they could meet mortgage credit standards.

Lawrence Yun, NAR chief economist, said home prices are set to rise in even more markets during upcoming quarters.  “It’s most encouraging to see a growing number of metro areas with rising median prices, which is improving the equity position of existing homeowners.  Inventory has been trending down and home builders are still under-producing in relation to growing demand,” he said.  “Some of the improvement in prices is due to a smaller share of sales in low price ranges where inventory is tight.”

The national median existing single-family home price was $181,500 in the second quarter, up 7.3 percent from $169,100 in the second quarter of 2011.  This is the strongest year-over-year increase since the first quarter of 2006 when the median price rose 9.4 percent, but even with the gain the current price is 20.1 percent below the record set in 2006.

The median price is where half 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.

According to Freddie Mac, the national commitment rate on a 30-year conventional fixed-rate mortgage averaged a record low 3.80 percent in the second quarter, down from 3.92 percent in the first quarter and 4.66 percent in the second quarter of 2011.

NAR President Moe Veissi, broker-owner of Veissi & Associates Inc., in Miami, said buying power is historically high.  “Home buyers today can stay well within their means.  Record low mortgage interest rates and an over-correction in home prices have opened the door to many potential buyers,” he said.

“What we need now is additional inventory in the lower price ranges, so we hope banks will be releasing more foreclosure inventory into the market.  With gains apparent in all of the price measures, banks also should have more confidence in expanding mortgage credit to home buyers using safe but sensible standards,” Veissi said.

First-time buyers purchased 34 percent of all homes in the second quarter, compared with 33 percent in the first quarter and 35 percent in the second quarter of 2011.  Historically they are close to 40 percent of the market.

Regionally, existing-home sales in the Northeast slipped 0.6 percent in the second quarter but are 10.6 percent above the second quarter of 2011.  The median existing single-family home price in the Northeast declined 1.6 percent to $241,300 in the second quarter from a year ago.

Existing-home sales in the South increased 1.3 percent in the second quarter and are 7.7 percent above the second quarter of 2011.  The regional median existing single-family home price increased 7.4 percent to $163,200 in the second quarter from a year earlier.

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