As 2013 approaches, the U.S. housing market carries momentum. Home buyer demand continues to rise as the national supply of homes sinks. As a result, home prices are rising in many U.S. markets, creating urgency among today's buyers to "get something done" before prices rise even more. Multiple-offer situations are becoming more common. Competition for homes for sale is expected to drive home prices up through 2013 and into 2014, at least. Low mortgage rates, thankfully, are keeping homes affordable.
Home Prices : Higher On Shrinking Inventory
It's no secret that home prices are rising. The Case-Shiller Index, the FHFA Home Price Index and more than a half-dozen other home valuation trackers have all reached the same conclusion -- 2012 was the year of the housing market's recovery. Buoyed by the lowest mortgage rates of a lifetime and relatively cheap housing, the number of home buyers nationwide outnumbered the number of home sellers, driving home supplies into Bull Market territory. Analysts measure housing supply in terms of months. At the current pace of sales, they ask, in how many months would the national stock of homes for sale be 100% sold? A 6.0-month supply is thought to represent a market in balance. Anything less than 6.0 months suggests a "seller's market"; one in which home sellers maintain negotiation leverage over buyers and are less likely to offer concessions including price concessions. The supply of existing homes is currently 5.4 months, down 10 weeks from one year ago. The median home sale price is up 11% in the same period of time. This is the economic principle of Supply and Demand in action. The same effect is present with new home construction.
New home supply is now 4.8 months nationwide, down 6 weeks from one year ago. The median new home sale price is up 6% over the same period of time. It's no wonder that the nation's home builders report their highest market confidence in more than 6 years. Demand for homes is high and home supply is shrinking. It's pushing home prices higher.
First-Time Buyers, Real Estate Investors Snap Up Homes
The ongoing housing market recovery is interesting in that all classes of home buyers are participating -- first-time buyers, move-up buyers, and real estate investors. For first-time buyers, low mortgage rates have changed the math on "Should I rent or should I buy?" At today's low rates, it can be more cost-effective to pay a mortgage each month than to pay rent for a comparable property. Plus, the availability of low- and no downpayment mortgages via the FHA, VA and USDA eliminate the need to make a 20% downpayment. 46% of first-time home buyers used FHA financing in 2012.
Move-up buyers -- which account for roughly half of all home buyers -- are also driving demand. Since the housing market downturn, many were left without means to purchase a new home, either because mortgage financing was unavailable, or because there was no buyer for their current home. When first-time buyers and other move-up buyers buy existing homes, though, it frees up the former homeowners to "move" somewhere else; and the cycle continues. Move-up buyers are among the major reasons why jumbo homes are selling so briskly as compared to recent years -- it's the trickle-up effect of housing. However, it's the effect of real estate investors that's driven home prices higher. Buying homes in bulk and locking up rental properties for the long-haul, seasoned real estate investors account for nearly 1 in 4 homes sold nationwide as 2013 begins.
Some real estate investors are use the 5-10 Properties Program to finance homes; others pay cash. In both cases, though, investors stoke demand for homes at all price points, which further weights the market toward sellers, leading prices higher. But what makes investors different from first-time buyers or move-ups is that "buying homes" is not about relocating for a job; or outgrowing a home after having a baby. For investors, buying homes is about math and money. Today, the math of real estate investing is hot. By 2015, however, it may not be. Once demand from real estate investors starts to slip, it may slow the growth of U.S. home prices.