Home Prices

After months of a strong and stable recovery, U.S. home sales have slowed going into Autumn and prices have dipped. Even so, inventory remains tight in many markets, according to a number of industry sources.

Though prices and conditions will vary by market, Zip Realty's Housing Trends Report shows home prices are moderating nationwide.

"The fall's cooler temps are being matched by a cooling off in the housing market's red-hot trends," said Lanny Baker, CEO and President of ZipRealty. "For the month ended Sept. 15, median homes sale prices in the 24 metropolitan areas surveyed were up 14% year-over-year, compared to a nearly 16% gain one month earlier. Median sale prices were higher than a year ago in all cities studied, but the year to year median price increases shrank in 19 out of 24 markets. The median sale price of about $272,000 in mid-September was also about twp percent lower than in mid-August 2013."

Further moderation

The report said sold-to-list price ratios, new listings volume, pending sales volume, and days on market data for mid-September also all suggested further moderation.

Redfin, another online real estate brokerage, says its data suggests sellers are losing control of the market, with buyers once again gaining the upper hand. However, its survey of agents found many believe that limited inventory and bidding wars remain the biggest challenges for buyers.

Redfin says a slowing of sales and price rises heading into fall is not surprising. In September, it said home sales, prices, and inventory all dropped from August.

However, in September prices had their third consecutive month-over-month drop, falling 2.2%. Home sales dropped 18.8% from August, and inventory fell 3.4%. Year over year, the housing market is still showing strength, the company said, with prices up 15.9% and home sales up 8.1%.

The National Association of Realtors (NAR) also noted a cooling in the market with a report that pending home sales – contracts signed but not yet closed – dipped 1.6% in August. NAR chief economist Lawrence Yun said much of the buying occurred earlier in the summer.

Lower sales expected

“Sharply rising mortgage interest rates in the spring motived buyers to make purchase decisions, culminating in a six-and-a-half-year peak for sales that were finalized in August,” he said. “Moving forward, we expect lower levels of existing-home sales, but tight inventory in many markets will continue to push up home prices in the months ahead.”

And there is little to suggest the tight inventory conditions will change anytime soon. CoreLogic, a property data firm, reports the inventory of foreclosed homes is down 33% from a year ago, meaning there are fewer distressed properties competing with homeowners trying to sell.

According to the report there were 48,000 completed foreclosures in the U.S. in August of 2013, down from 72,000 in August 2012. That's a year-over-year decrease of 34%. On a month-over-month basis, completed foreclosures increased 1.3 percent, from 47,000 in July 2013.

Putting it in context

However, the numbers should be viewed in context. CoreLogic notes that the 48,000 completed foreclosures are sharply lower that at the height of the housing crisis, but they are still sharply higher than before the crisis began. Between 2000 and 2006 completed foreclosures averaged 21,000 per month. Still, for the health of the housing market, the numbers are running in the right direction.

“The foreclosure inventory continues to improve, as exhibited by these recent numbers,” said Dr. Mark Fleming, chief economist for CoreLogic. “A surge in completed foreclosures and a rise in the foreclosure inventory is unlikely given continued house price improvements and shortages of supply in many markets.”

What it means is the housing market may maintain some balance heading into the end of the year, which should turn out to be good for everyone.

Rising home prices and interest rates produced a slight decline in housing affordability in the third quarter according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI), which was released today.

The National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index (HOI) shows 62.2% of new and existing homes sold between the beginning of July and end of September were affordable to families earning the U.S. median income of $65,800. That's down 1% from the second quarter.

The national median home price increased slightly from $230,000 in the second quarter to $231,000 in the third quarter. Meanwhile, average mortgage rates edged higher -- from 3.99% to 4.18% in the same period.

"The decline in the index was slight and affordability remains good," said NAHB Chief Economist David Crowe. "With mortgage rates near historic lows and home prices advancing at a modest pace, this is an excellent time to buy."

Most affordable markets

Syracuse, N.Y., was rated the nation's most affordable major housing market, switching places with Youngstown-Warren-Boardman, Ohio-Pa., which fell to the second slot on the list. In Syracuse, 91.7% of all new and existing homes sold in this year's third quarter were affordable to families, earning the area's median income of $68,500.

Rounding out the top five affordable major housing markets in respective order were Harrisburg-Carlisle, Pa.; Indianapolis-Carmel, Ind.; and Scranton-Wilkes-Barre, Pa.

Meanwhile, Glens Falls, N.Y. claimed the title of most affordable small housing market. There, 92.6% of homes sold during the quarter were affordable to families, earning the area's median income of $65,400.

Smaller markets joining Glens Falls at the top of the list included Sandusky, Ohio; Kokomo, Ind.; Springfield, Ohio; and Rockford, Ill.

Least affordable markets

For the 12th consecutive quarter, San Francisco-San Mateo-Redwood City, Calif. was the nation's least affordable major housing market. There, just 10.5% of homes sold in the third quarter were affordable to families, earning the area's median income of $103,400.

Other major metros at the bottom of the affordability chart were located in California. In descending order, they included Los Angeles-Long Beach-Glendale.; Santa Ana-Anaheim-Irvine.; San Jose-Sunnyvale-Santa Clara.; and Santa Rosa-Petaluma.

All five of the least affordable small housing markets were also in California. At the very bottom of the affordability chart was Santa Cruz-Watsonville, Calif., where 16.5% of all new and existing homes sold were affordable to families, earning the area's median income of $87,000. Other small markets at the lowest end of the affordability scale included Salinas; Napa; San Luis Obispo-Paso Robles; and Santa Barbara-Santa Maria-Goleta, respectively.

"Attractive home prices and interest rates, along with firming job growth, are helping housing markets across the country to gradually improve," said NAHB Chairman Tom Woods, a home builder from Blue Springs, Mo. "While this bodes well for housing in the coming year, builders continue to face challenges, including a lack of available lots and skilled labor."

The real estate market has come a long way from the depths of the Great Recession, which froze sales and sent home values plunging. Now, both sales and prices are rising.

That point was driven home earlier this month when CoreLogic reported that home prices nationwide, including foreclosures and short-sales, increased 11.9% in June, year-over-year. It was the 16th straight monthly increase in home prices. Though prices in most markets are not back to where they were at the height of the housing bubble, the rebound is presenting some people the opportunity to cash in, in one way or another.

The most obvious way to cash in is to put your home up for sale. If you bought before 2003, when prices began to surge, you may have regained a lot of your lost equity. That lost equity may have prevented you from putting your house on the market over the last few years.

Now's the time

“Now may be the time to do it,” said Pat Esswein, who writes about real estate for personal finance publication Kiplinger. “It certainly is a quicker process, and in many markets you can sell for more money than you could a year or two ago.”

Of course, all real estate is local. It's possible that market conditions where you live haven't fully recovered. But if you live in one of the hardest hit markets, you may have recovered quite a bit of equity.

“In Phoenix, for example, they've seen home process rocket up, by more than 20% in some cases,” Esswein said. “But that's somewhat unusual. But at least prices in most markets are moving in the right direction. Homes are appreciating in value to some degree. There are still a lot of homeowners who are underwater on their mortgages. They'll probably have to wait some time yet before they have enough equity to allow them to sell.”

One reason prices have recovered is the short supply of homes for sale. Over the last year foreclosures have slowed considerably. Those underwater homeowners can't sell. That means you might be able to sell your home quickly but might not be able to find another house right away. That can raise problems for the seller.

Make choices

“You may have to eliminate some things from your wish list or you may have to broaden the geographic scope or your search,” Esswein said. “If you feel you're going to need more time to find something, many sellers are asking the purchasers to do what's known as a lease-back arrangement, where the seller can rent back their current home for some period of time after settlement.”

But that isn't always feasible. The buyer might not have the luxury of waiting three months before taking possession of the property.

Selling your home is not the only way to cash in on the recovering market. Many homeowners have refinanced, taking advantage of historically low interest rates. The lower rates have resulted in lower monthly payments, in effect putting money in the homeowner's pocket every month.

“People have been refinancing right along as rates dropped to historic lows,” Esswein said. “And even though there has been some volatility over the last few months, rates still are historically low.”

Lower payment is primary goal

When most people refinance their mortgages these days, they are doing so to lower their payments. By and large they are more likely to pay down principal at closing, rather than take out equity in cash.

“If you have equity you could do a cash-out refi, but of course when you take cash out, you are reducing your equity in the home and increasing the risk to the lender, so they charge you a premium,” Esswein said.

During the housing bubble millions of consumers did, in fact, take cash out of their homes when they refinanced. After all, it was generally assumed that the value of real estate would always go up.

Of course, it didn't. The resulting housing crash left many people who once had a lot of equity in their homes with negative equity. A number of those cases ended in foreclosure.

Will history repeat itself? Esswein says it's not likely. Lenders are a lot more prudent than they once were – and so in fact are homeowners. Still, the recovering housing market may allow some homeowners to “cash in,” even if it means just being able to finally sell their homes.