This Month in Real Estate Newsletter for U.S. & Canada Markets - May 2011
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Each month, This Month in Real Estate provides expert opinion and analysis on real estate trends across the United States & Canada. The aim of the consumer-oriented segments is to help Keller Williams Realty real estate sales associates combat the “doom and gloom” messages of the national print and television media with real information on the state of the real estate industry.
Gradual and uneven progress in the housing market continues without government support. The market has shown remarkable improvement from the initial drop after the expiration of the home buyer tax credit this past July. Although higher-than-normal distressed and all-cash sales continue to skew the overall picture of home prices downward, inventory remains at pretax credit expiration levels. As economists anticipate rates at or above 6% by the end of 2012, buying activity is expected to continue its upward momentum.
Increasing signs of inflation have been a recent item of concern. Driven by unrest in the Middle East, the retail price of gas has risen by 25% since the year began and 89% from this time two years ago. In his first ever press conference, Federal Reserve Chairman Ben Bernanke noted the Fed believes these price increases are transitory and will not have a major impact on the U.S. economy. However, according to NAR’s chief economist, for each $10 per barrel rise in oil prices, $80 billion is removed from the economy.
Bernanke stated that the Fed will keep a close eye on the impact of oil prices on the economy as it considers policy changes. Although inflation is up for the first quarter, price gains excluding food and fuel slowed in March, helping consumers to feel less constricted.
As the economy improves, stimulus efforts by the government and the Federal Reserve Board will gradually wind down, which typically spurs rising interest rates to keep inflation in check. Meanwhile, buyers continue to benefit from historically favorable buying conditions and sellers are encouraged by increased market stability.
Home Sales(in millions):
Home sales were up 3.7% in March compared to the previous month but were down 6.3% compared to the same time last year when the impact of the tax credit was nearing its peak. Gradual but uneven improvement is expected to continue. In fact, home sales have increased six of the past eight months. The general trend of improvement remains a positive signal, as home sales remain up 32% since the low in July and are down only 12% since the peak last April, which was induced by the tax credit deadline of a signed contract by the end of that month.
Home Price(in thousands):
Home prices rebounded 2.2% in March with median home prices rising to $159,600. This is 5.9% below the year-ago level and keeps the median price close to 2002 levels. Continuing February's trend, two out of every five homes sold during March, or 40% of sales, were distressed properties, which typically sell at a 10%-20% discount. The decline in home prices is less indicative of individual home values and more reflective of a large number of less expensive homes selling and bargains that are getting snapped up. Investors represented 22% of sales, and all-cash buyers were at a record high of 35% of sales in March. Prices and mortgage rates remain favorable for buyers for the spring selling season.
Inventory- Month's Supply(in months):
The supply of homes measured in months on the market, if sales continue at their current pace, remained stable compared to the previous month. This is the third-lowest level since June. Inventory levels remain 33% below its peak of 12.5 months in July and only slightly above where it was last year when the tax credit was in full-swing.
Source: National Association of Realtors
After rising above 5% for the first time in ten months in early February, rates have remained stable in the 4.8% range. They are still expected to follow an upward trend throughout the year. As overall economic recovery remains on track, rates will likely rise to keep inflation in check. Buyers wanting to capture the savings in monthly payments that a historically low interest rate affords are expected to move quickly to take advantage of excellent buying conditions.
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Despite lingering effects from regulatory changes in the mortgage markets, the housing market continues on a relatively balanced track. Sales activity is 47% above the recessionary low of December 2008 and not far behind the recovery high of December 2009. Home prices rose, while sales remained on par with the previous month.
The Canadian economy continues to show positive signs. Growth forecasts for the second quarter of 2011 were revised from 2.5% to 4.2%. Improvements in trade are expected to bolster household incomes and net worth. While still historically high, the Canadian currency is likely to hold steady, near parity, with the U.S. dollar. While the Bank of Canada has left the overnight interest rate steady, it is expected to raise it this summer.
Moving forward, rising interest rates, weaker job growth, and a strong currency are likely to keep sales activity and price appreciation stable and slower than seen previously during the recovery. Due to improved affordability, balanced markets, and low mortgage rates, there are great opportunities for both buyers and sellers.
Home Sales(in thousands):
Resale housing activity remained stable from February to March, rising by just 0.08%. Beginning March 18, the maximum term for government insurance mortgages decreased from 35 to 30 years. This encouraged buyers in the priciest markets to purchase before the deadline to lock in lower monthly payments. Because the impact of this regulation appears to target upper-end homes in the most expensive areas of the country, its effects are generally expected to be minimal.
Average Home Price(in thousands):
Home prices continued to climb in March. The average home price was $371,053—up 8.6% from a year ago. According to Gregory Klump, CREA chief economist, prices continued to be skewed upward by a record number of multi-million dollar home sales in the Vancouver area. Otherwise, Klump stated that prices remained relatively stable, rising by just 4.3%. Overall, long-term stability is expected to resume after the impact of the changing mortgage regulations winds down.
The national housing market remained in balanced territory in March, as illustrated by the sales-to-new listings ratio. The number of months’ supply of homes on the market remained stable and is currently at 5.6 months compared to 5.7 the previous month. Balanced inventory bodes well for the housing market moving forward.
Low interest rates and stabilizing home prices continue to open up homeownership to an increasing number of Canadians. As widespread global recovery gains a further footing, rates will increase to combat inflation and keep it near the 2% target. In fact, rates already have come back up to last year’s level from record lows in December and January.
Sources: Conference Board, The Canadian Real Estate Association (CREA), Royal Bank of Canada, Canadian Mortgage and Housing Corporation, Bank of Canada.
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