Growth in metropolitan area median home prices increased in Q3, and more areas are showing gains, according to the latest quarterly report by the National Association of Realtors (NAR). The median existing single-family home price rose in 120 out of 149 metropolitan statistical areas (MSAs) based on closings in the third quarter compared with same quarter in 2011, while 29 areas had price declines. In the second quarter 110 areas showed increases from a year earlier, while in the third quarter of 2011 only 39 metros were up.
“Housing inventories have been gradually trending down from a record set in the summer of 2007,” said Lawrence Yun, NAR chief economist. “Earlier this year, a broad equilibrium began to develop in most areas between homebuyers and sellers, which led to a sustained upturn in home prices. We expect fairly normal appreciation patterns in 2013, but there is a risk of price acceleration if builders are unable to increase supply to meet the needs of our growing population and household formation.”
The national median existing single-family home price was $186,100 in the third quarter, up 7.6 percent from $173,000 in the third quarter of 2011, which is the strongest year-over-year price increase since the first quarter of 2006 when the median price rose 9.4 percent. In the second quarter the price increased 7.2 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.
Some of the price gain resulted from a smaller share of distressed home sales in the market, but the higher prices significantly reflect a market recovery. Distressed homes—foreclosures and short sales which generally sell at deep discounts—accounted for 23 percent of second quarter sales, down from 30 percent a year ago.
A separate breakout of income requirements to buy a home on a metro area basis shows buyers in the vast majority of areas had ample income in the third quarter, assuming they could meet stringent mortgage credit standards.
Total existing-home sales, including single-family and condo, rose 3.2 percent to a seasonally adjusted annual rate of 4.68 million in the third quarter from 4.54 million in the second quarter, and were 10.3 percent higher than the 4.25 million pace during the third quarter of 2011.
At the end of the third quarter 2.32 million existing homes were available for sale, which is 20.0 percent below the close of the third quarter of 2011 when 2.90 million homes were on the market.
According to Freddie Mac, the national commitment rate on a 30-year conventional fixed-rate mortgage averaged a record low 3.54 percent in the third quarter, down from 3.80 percent in the second quarter and 4.31 percent in the third quarter of 2011.
"Historically low mortgage interest rates are encouraging many buyers who were on the sidelines," said NAR President Moe Veissi, broker-owner of Veissi & Associates Inc. “Sales this year are notably higher than the levels seen in 2008 through 2011, so we’re clearly in a recovery phase with rising sales, declining inventory and rising prices. Of course the recovery would be stronger and more stable if we could return to safe, but sensible mortgage underwriting standards.”
A breakout of incomes required to purchase a median-priced existing single-family home by metro area shows the typical buyer had more income than necessary in the third quarter. Income amounts are determined using several downpayment percentages, assuming a mortgage interest rate of four percent and 25 percent of gross income devoted to mortgage principal and interest.
The national median family income4 was $61,700 in the third quarter. However, to purchase a home at the national median price, a buyer making a five percent downpayment would only need an income of $40,900. With a 10 percent downpayment the required income is $38,700, while with 20 percent down the necessary income is $34,400.
In the condo sector, metro area condominium and cooperative prices—covering changes in 54 metro areas—showed the national median existing-condo price was $180,800 in the third quarter, up 7.7 percent from the third quarter of 2011. Thirty-three metros showed increases in their median condo price from a year ago and 21 areas had declines.
First-time homebuyers purchased 32 percent of all homes in the third quarter, down from 34 percent in the second quarter; they were 32 percent in the third quarter of 2011. The share of all-cash home purchases was 27 percent in the third quarter, down from 29 percent in the second quarter and 29 percent in the third quarter of 2011. Investors, who make up the bulk of cash purchasers and compete with first-time buyers, accounted for 17 percent of all transactions in the third quarter, down from 19 percent in the second quarter and 20 percent a year ago.
“The modest decline in first-time buyers and investors shows the impact of limited inventory in the lower price ranges from a shrinking share of distressed homes, which are popular with both of these groups,” Yun said.
Regionally, existing-home sales in the Northeast increased 1.7 percent in the third quarter and are 9.8 percent above the third quarter of 2011. The median existing single-family home price in the Northeast slipped 0.3 percent to $246,900 in the third quarter from a year ago. In the Midwest, existing-home sales rose 5.2 percent in the third quarter and are 17.8 percent higher than a year ago. The median existing single-family home price in the Midwest increased 4.2 percent to $151,100 in the third quarter from the same quarter in 2011. Existing-home sales in the South increased 5.4 percent in the third quarter and are 11.7 percent above the third quarter of 2011. The regional median existing single-family home price rose 5.7 percent to $165,400 in the third quarter from a year earlier. In the West, existing-home sales slipped 1.2 percent in the third quarter due to limited supplies, but are 2.1 percent higher than a year ago. With the tight inventory, the median existing single-family home price in the West surged 20.2 percent to $247,400 in the third quarter from the third quarter of 2011.