Home Prices Rise, Market Challenged by Tight Inventory
By: Dona DeZube Published: February 21, 2014
Home prices are rising in many U.S. markets, but headwinds from winter storms, tight inventory, tough credit standards, and rising mortgage interest rates continue to hold back sales.
A lack of houses for sale continued to lift home prices in much of the country, but also pushed down the number of existing homes sold in January, data from the NATIONAL ASSOCIATION OF REALTORS® shows.
The weather wasn’t helping either. “Disruptive and prolonged winter weather patterns across the country are impacting a wide range of economic activity, and housing is no exception,” said NAR Chief Economist Lawrence Yun. “Some housing activity will be delayed until spring.”
He also blamed slower home sales on headwinds created by tight credit, limited inventory, rising home prices, and higher mortgage interest rates. “These issues will hinder home sales activity until the positive factors of job growth and new supply from higher housing starts begin to make an impact,” Yun said.
The median existing-home price in January was $188,900, up 10.7% over the past year. The median home price is the point at which half of homes sold for more and half sold for less.
The number of existing single-family homes, townhomes, condominiums, and co-ops sold in January dropped 5.1% from a year ago. Last month’s level of activity was the slowest since July 2012.
Flood Insurance Woes
NAR President Steve Brown said that in addition to disruptive weather, higher flood insurance rates are affecting the market in areas designated as flood zones, which account for roughly 8%-9% of all markets.
“Thirty percent of transactions in flood zones were canceled or delayed in January as a result of sharply higher flood insurance rates,” he said. “Since going into effect on Oct. 1, 2013, about 40,000 home sales were either delayed or canceled because of increases and confusion over significantly higher flood insurance rates. The volume could accelerate as the market picks up this spring.”
Congress is considering legislation to halt new flood insurance rates so the FEMA can complete an affordability study and determine the full impact of the law.
Related:Should You Buy Flood Insurance?
Fewer Foreclosed Homes for Sale
One factor that’s helping boost prices is a decline in the number of distressed homes — foreclosures and short sales — on the market. Distressed homes typically sell at a discount.
- In January, only 15% of sales were distressed. At this point last year, 24% of sales were distressed.
- Foreclosures sold for an average discount of 16% below market value in January, while short sales were discounted 13%.
How Long Does It Take to Sell?
Even though the number of homes for sale rose a slight 2.2% in January, there’s still only a 4.9-month supply of homes for sale nationally at the current sales pace. A supply of 6.0 to 6.5 months represents a rough balance between buyers and sellers.
Median time on market:
- All homes: 67 days in January, down from 72 days in December, and 71 days on market in December 2013
- Short sales: 150 days in January
- Foreclosures: 58 days
- Non-distressed homes: 66 days
Thirty-one percent of homes sold in January were on the market for less than a month.
Who’s Buying Homes?
NAR noted some important changes among the population of homebuyers:
1. First-time buyers accounted for 26% of purchases in January. That’s the lowest market share for first-time buyers since NAR began monthly measurement in October 2008. In the past, about 40% of home sales involved first-time buyers.
2. One-third of sales were to cash buyers.
3. Individual investors, who account for many cash sales, purchased 20% of homes in January, compared with 21% in December and 19% in January 2013. Seven out of 10 investors paid cash in January.
Other data from the NAR’s existing home sales survey showed:
Up or Down
Jan. 2014 Median Price
|Median Price Compared
with Jan. 2013
|Single-family home sales||Down 5.8%||$188,900||Up 10.4%|
|Condo and co-op sales||Up 1.8%||$188,700||Up 13.0%|
|Northeast home sales||Down 3.1%||$241,100||Up 6.6%|
|Midwest home sales||Down 7.1%||$140,300||Up 7.6%|
|South home sales||Down 3.5%||$161,500||Up 9.4%|
|West home sales||Down 7.3%||$273,500||Up 14.6%|