29 May 2012

Housing Market Recovering

Story first appeared in The Wall Street Journal.

Sales of previously owned homes rose at a robust clip in April—and prices jumped—the latest indications that the hard-hit housing market is recovering.

Existing-home sales were up 3.4% from March to a seasonally adjusted annual rate of 4.62 million, the National Association of Realtors trade group said Tuesday. If the pace holds, 2012 could be the strongest year for home sales since 2007, just after the housing boom. The median home price, meanwhile, increased 10.1% from a year earlier to $177,400, the strongest year-to-year gain since January 2006.

Economists said the higher median price reflects rising values and a shift toward fewer sales of foreclosed homes.

The higher sales are further confirmation that the industry is experiencing the best spring selling season since 2010, when home-buyer tax credits boosted demand. Sales improved partly thanks to strong demand from investors, who have been active buyers of distressed properties which they hope to sell at a profit. But they were also helped by traditional buyers who are feeling more confident about the economy and are ready to take advantage of low interest rates and bargain prices.

While prices are starting to rise, they remain significantly lower than a few years ago. Last week, Freddie Mac said average rates on 30-year fixed-rate mortgages dropped to 3.79% for the week ending May 16. In 2005, at the height of the housing boom, some 30-year rates topped 6%.

Tuesday's report held signs that conditions in the housing market are inching closer to normal: Foreclosures and other distressed properties, which sell at steep discounts and have dragged down prices in recent years, accounted for 28% of April's sales—down slightly from March and a steep drop from 37% a year earlier. First-time buyers, who have struggled with tightened lending standards in recent months, made up 35% of April's purchasers, up from 33% in March and down slightly from a year earlier.

Inventories remain lean, though they are expanding. The inventory of homes for sale increased 9.5% from March to 2.54 million at the end of April, indicating more sellers feel comfortable enough to list their homes. That represented a 6.6-month supply, a level considered healthy by economists.

But it appears to be getting harder to find big bargains. Sales of homes under $100,000 fell more than 25% from a year earlier in the foreclosure-heavy West. Nationwide, homes priced between $250,000 and $500,000 were up 21.2% from a year earlier.

Still, real-estate agents say the housing recovery could easily stall if inventory swells—for instance as banks seek to unload more foreclosed properties—if interest rates rise, or if the economy stumbles.

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