About 92 percent of REALTOR® respondents in the August REALTORS® Confidence Index Survey expect prices to remain stable or to continue to increase in the next 12 months although at a rate of about 4 percent, significantly lower than recent experience. Tight inventory, pent-up demand, and the drop in foreclosure inventory have provided much of the lift in prices, but the increase in interest rates in recent months is raising the prospect of softer demand.
Across the states, the median expected price changes based on data from the June-August surveys are most upbeat in the Western states as well states like Florida where inventory is extremely low. See report at http://www.realtor.org/reports/realtors-confidence-index
 This is the median expected increase. A median expected price change of 4 percent means that 50 percent of respondents expect prices to increase above 4 percent while the other 50 percent expect prices to increase (or decrease) at less than 4 percent.
Inventory/supply conditions were reported to be improving, as reflected in the increase in the Seller Traffic Index to 46 (from 43 in May). The Buyer Traffic Index dipped slightly to 69 in June (from 71 in May), possibly due to the impact of rising prices and higher mortgage interest rates. REALTORS® reported that not enough inventory was coming on the market from both REOs and homeowner listings as current homeowners wait for prices to move up further. About 47 percent of REALTORS® reported having potential sellers waiting for further price appreciation. The information is based on the June REALTORS® Confidence Index (RCI) Survey.
What Does this Mean for REALTORS®?
The major problem holding back the current residential sales market expansion is a lack of inventory. This is a condition that is likely to continue for the foreseeable future, so REALTORS® may want to focus on informing potential buyers as to the limited inventories of available homes and the need to move quickly once a desired home is identified.
Did You Know: Inventories are declining at a slower pace, but unless inventories grow, demand for housing will keep the pressure on prices and the balance of the market in favor of sellers.
- Comparing the total number of homes available for sale in April 2013 to one year ago, we see that inventories in April are nearly 14 percent lower than they were one year ago. In the chart, we see that the decline has abated but not stopped; a 14 percent decline is an improvement over 20+ percent, but inventories remain scarce. Continue reading »
Between April of 2006 and April of 2011, the median home price fell 27.6%. However, the median price rebounded 19.7% over the subsequent two years. While many formerly underwater homeowners are just now getting their first shot at taking advantage of record affordability, others who opted to rent their properties will now be able to sell them, releasing much needed inventory to the market.
The month’s supply of homes for sale reached a 9-year low in March of 4.3 months, well below the 6.5 months typical of a balance market. This figure rose to 5.2 months in April with the normal seasonal increase, but was still 21.2% below the figure from a year earlier. While tight inventories can drive price growth, excessively stringent supplies can create headwinds to demand as consumers are priced out of the market or left with inadequate options.
At the peak, roughly 12.1 million homeowners were underwater on their mortgages owing more than their property was worth. Insufficient equity could preclude owners from buying a larger property to facilitate a growing family or hamper a sale to take advantage of a job opportunity in another market. Likewise, defaulting on a mortgage or short selling, even with agreement from a bank, could damage one’s credit score preventing another purchase for three to seven years.
Not all underwater homeowners were equity constrained, though. Some owners were able to rent their original properties and put together enough money for another home purchase. What’s more, the expansion of availability of the FHA’s low down payment program helped facilitate this process, enabling mobility and fluidity in the market for these accidental landlords.
Since the 4th quarter of 2011, steady price gains have unlocked roughly 1.7 million from negative equity positions. This improvement has allowed many underwater owners and landlords to sell without a loss of equity or without taking a hit on their credit score. A homeowner who sells their home in order to buy another would not create a net addition to inventories, but a landlord who sells would.
Although rents are strong and opportunities like HARP exist for accidental landlords to refinance at record low mortgage rates, not all owners are cut out to be landlords or they may have more productive uses for their equity. For instance, an owner with an FHA mortgage might want to buy down principle on their primary property in order to avoid the hefty mortgage insurance on FHA mortgages. Regardless, many owners of rental properties will now have the opportunity to unwind this position, bringing new inventory to the market that would be a welcome addition to current supplies.