The U.S. housing market has shown increased stability in home sales during 2011 compared to the previous year. The trend has been an upward one since the expiration of the tax credit last summer. Home prices have softened, particularly earlier this year, due to a higher-than-normal number of distressed sales. However, both the percentage of distressed sales and the amount of time they spend on the market has decreased in recent months, a positive sign for the market moving forward. In fact, prices have steadily followed a positive monthly trend since February. Mortgage defaults have also declined lately.
While interest rates continue to break new record lows, the number of buyers who are able take advantage of these savings is restricted by tougher underwriting standards for mortgages. 40% of the banks surveyed by the Office of the Comptroller of the Currency tightened lending standards for mortgages within the past year. In his second press conference, Federal Reserve Chairman Ben Bernanke stated that a quicker foreclosure process and additional home price stabilization are key to boosting confidence in the market and bolstering a more robust recovery in the housing sector.
As the economy improves, stimulus efforts by the government and the Fed will most likely continue to wind down, which typically spurs rising interest rates to keep inflation in check. Although inflation has been the source of recent concern, the Fed appears confident it will remain in check for the near term. Meanwhile, buyers continue to benefit from historically favorable buying conditions, and sellers are encouraged by increased market stability.
Interest Rates Rates are at a record low after steadily declining throughout May, primarily due to uncertainty in the global and domestic economies. While these incredible rates represent a significant savings for home buyers, experts note that for the benefits to fully be realized, lending conditions must loosen so more buyers can take advantage of them. As overall economic activity gets back on track, rates will likely rise to keep inflation in check. In other words, the window of opportunity for buyers to lock in these historically low interest rates may not remain open much longer.
Home Price Home prices rebounded 3.4% in May with median home prices rising to $166,500. This is 4.6% below the year-ago level and continues to keep the median price close to 2002-2003 levels. Just under 1 in 3 homes sold during May were distressed properties, which typically sell at a 10%-20% discount. This is down 6 percentage points from April and is exactly the same as a year ago. Investors represented 19% of sales, and first-time buyers accounted for 35% of May sales compared to 14% and 46% respectively a year ago at the peak of the tax credit. Home prices and mortgage rates remain favorable for buyers heading into the summer selling season.
Inventory The supply of homes measured in months on the market at their current pace was up during May compared to April. Inventory levels remained 26% below the peak of 12.5 months in July 2010 and 12% above April of 2010 when the tax credit was in full swing.
Repeat buyers, especially move-up buyers, tend to want their next home to be in great condition. Usually, when homes are located in a neighborhood that attracts those buyers, homes need to be pristine to stand out from the rest. This can be achieved in part by getting the home preinspected. Research shows that 8% of sellers have a prelisting inspection before putting their home on the market.
49% of buyers end up purchasing a home in excellent condition while 40% purchase a home in good condition.
In the current market, it is fundamental for sellers to make essential repairs to their homes before listing, and curb appeal is particularly important. This is often a first step to getting buyers in the door. Sellers who choose to make enhancements to their front yards tend to have good-to-excellent results in comparison to the 68% who don't. By boosting curb appeal, sellers tend to receive their first offer six days faster and sell seven days sooner than sellers who choose not to focus on first impressions.
47% of sellers enhance their curb appeal by making changes up to five weeks in advance of listing the home. Sellers tend to spend between $150 and $1,000 when improving their curb appeal. El Dorado Hills July 2011 Market Update
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