Why Are Home Prices Rising?

Why Are Home Prices Rising?

Through July of 2012, home prices posted the largest year to date increase since 2005, according to the S & P/Case-shiller index which covers 20 of the populous metropolitan areas.

According to this index, prices rose 5.9% from December of 2012 compared with just a .4% gain for the same period last year and a 2.1% gain in 2010 (the tax credit fueled a burst of home sale activity during the year of 2010)

Below you will find some of the most asked questions about the real estate market and its recovery.  Remember, real estate is “local” and although the nation has seen prices increase 5.9%, the greater Boise-Nampa Metro area has seen the home prices increase over 10%.

ARE PRICE INCREASES LIMITED TO A SMALL SEGMENT OF THE MARKET? (FORECLOSED PROPERTY)

Nope.  Statistical data shows that the real estate price increases are being felt by all segments of the market.  Up 12% from 1 year ago are the median home prices of all homes—distressed or not.  Median prices of new home sales are up by 6%.

HOW COULD PRICES BE INCREASING WHEN THERE ARE STILL AN ABUNDANCE OF FORECLOSURES?

The share of bank owned homes which are selling has declined over the past 2 years even though the amount of foreclosures on the market is still considered to be historically high.  Foreclosed homes currently on the market are down by 24% from 1 year ago and 45% from 2 years ago.

Foreclosed property sales have decreased approximately 20% from 1 year ago while traditional home sales have increased 16% from one year ago.  Prices are obviously rising not only due to a low supply yet also because the demand has increased.

ARE BANKS STRATEGICALLY HOLDING PROPERTIES OFF OF THE MARKET?

There is little to no evidence that banks have an inventory of “ready to be listed” homes sitting on their books—just waiting for the right time to flood the market.  It’s true, however, that there are millions of homes/properties that are in the midst of the foreclosure process and it is still unclear when or how many of these homes will be foreclosed upon by the lien holder.  The actual volume of foreclosed properties that are currently being held by the banks is down by nearly 24% from 1 year ago, though.

HOW LARGE IS THE SHADOW INVENTORY?

The dreaded “shadow inventory” has decreased by more than 500,000 units in comparison to the amount of homes held at the beginning of 2012.  An estimate by Zelman & Associates discloses that there are 2.9 million properties which could be included w/in the shadow inventory category.

Shadow inventory is decreasing much more slowly than anticipated due to the banks taking longer to process foreclosures and the loan modification program not helping as many home owners as originally thought.   Experts predict that the shadow inventory will remain steady during 2012 before falling 20% by the end of next year.

ARE HOME PRICES GOING TO DECLINE FURTHER?

During the selling seasons (spring and summer), home prices tend to strengthen yet weaken in the fall and winter.  This said, it is important to monitor the year-over-year change in home prices.  If lien holders/banks continue to establish more foreclosure alternatives for homeowners “in trouble” and the housing demand remains at its current levels, then home prices have easily hit bottom and are approaching the self-reinforcing portion of the real estate cycle.

The largest risks to the housing recovery are weaknesses in job growth along with the broader economy/tighter credit standards brought on by mortgage regulations.

Source: Strategic REI.

If you still ask yourself a question ” how can I sell my house fast orlando?”, we recomend to read our next article.

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