Are we in a real estate market recovery?
When asked this question as a REALTOR®, I first look at the overall national real estate market and then evaluate the specific local market conditions.
For several months now, all indications show that the national housing market is picking up and much of the media states we are now in a “housing recovery”. In most markets across the country, sales and prices are moving in a positive direction. The Pending Homes Sales chart demonstrates overall sales increasing from June 2010 levels to July 2012.
Nationally, home sales are up 8.6%, inventory is down 24.4%, distressed properties are down 33% and interest rates are down by almost one point. One caveat: although it shows that median home prices have gone up 7.3%, you have to remember that median price is different than average sales home price. The reason the median price is up in many markets is that there are less distressed properties, often at lower prices on the market. This number does not mean prices have changed dramatically, but overall things are going in a positive direction.
The average home price is also going up in many markets and in some competitive markets we are seeing multiple offers driving average prices up. Keep in mind that this isn't across the board. Some states like Arizona and Florida which had experienced huge declines in prices, have now seen increases of 12.9% and 7.4% respectively. In Illinois, the overall number in August showed about a 0.3% rise. In the city of Chicago, real estate prices have increased about 1.1% from declines of 38% at the peak in 2006. Prices are basically stabilizing and in most cases, prices are going up even if it is by only a half of one percent. The FHA actually predicts a 0.09 rise. The home price survey, which is the opinion of 111 analysts, shows there will be less than an overall increase of 1% in the next 18 months.In August, Bank of America adjusted their home price forecast from 0.5% to as high as 2% this year. Interest rates are still at all-time lows. In September, they ticked up a bit and then went back down the following week. Let’s assume over the next year they remain in a balanced range. One reason why the market is going in a positive direction is that with both low prices and mortgage rates, people realize they will pay a lot less on their monthly mortgage payments. Additionally, higher rental prices in most marketplaces are driving people to consider buying especially if the cost of home ownership is less than renting. If prices are indeed ticking up and most likely interest rates are not going to get much lower, then the overall sentiment is that now is a good time to buy a home.
Now, when it comes to real estate market analysis, there are two issues on the minds of consumers: what is going to happen after the election? How will Greece and Europe affect the market? Certainly the upcoming election will affect the economy but neither candidate has stepped out with a plan that will change things from a housing perspective. As for Greece and Europe, the uncertainty in their economy has helped keep our interest rates low.
Based on what I've presented and indications from the housing analysts it is clear that the housing market is moving in a positive direction. Even if prices fluctuate (and in some areas even slip due to shadow inventory of short sales and foreclosures coming on the market) many parts of the country are seeing a lack of inventory overall. Basic laws of supply and demand predict that lower inventory will cause an uptick in prices.
Now that you have a good synopsis of the national market, in my next blog entry I will address the local Chicago marketplace.