The Housing Market Rebound

February 18, 2014 russelzaman Comments Off on The Housing Market Rebound

Home Sale Highs

The first place to look when analyzing a market is consumer confidence. In the housing market consumer confidence is reflected by the amount of homes sold. When consumer confidence rises demand rises and home prices begin to rise. Builders begin to build to meet consumer demand and the housing market starts its rebound. In 2011 the total existing home sales needle stood at 4.38 million.

The Housing Market Rebound The Housing Market ReboundIn 2012 that number climbed 12.8% to 4.90 million. In 2013 that number rose by 9.1% to 5.09 million units, the most homes sold since 2006 when an illogically high 6.48 million homes were sold. So home sales are clearly rising, now let’s analyze pricing.

Median Price Increases

When analyzing statistics nationwide the average home price increase can provide a skewed picture of the stability of the housing market. For example, the value of super expensive homes may rise while other categories may fall and since the super expensive homes account for millions of dollars in increase they cover the gaping holes left by mid-price housing decreases. Statistically the most certain indicator is the median home price rises. In 2012 median home prices rose 11.5% from 2011 levels to

$180,800. In 2013 they rose again by 9.9% to $198,000. Factors such as a low supply of housing units, low mortgage rates, and the lower unemployment levels point towards a continued increase in housing prices.

Equity Cycle

As home prices continue to rise home equity (non-debt portion of the home’s value) will rise. As home equity rises many homeowners will choose to leverage that equity/translate it into loans. That influx in money will further increase consumer spending creating an upwards spiral of demand. Meaning more money will be available and naturally more money will be spent. When that money trickles through the economy more potential homeowners will emerge thus further increasing home pricing. Additionally,

as the American tax code favors debt over equity (the debt portion of your mortgage payments is tax deductible) many will choose to leverage their equity to purchase new homes and will further increase demand.

Record Mortgage Lows

If you look at the  previous  ten  years we stand at extremely low annual average 30 year fixed mortgage rates. (2003: 5.83% 2004: 5.84% 2005: 5.87% 2006: 6.41% 2007: 6.34% 2008: 6.03% 2009: 5.04%

2010: 4.69% 2011:4.45% 2012: 3.66% 2013: 3.98%) 2013 had the lowest average rate aside from

2012 which indicates two things:

1. The economy and the housing market are recovering, if the government expected a weak market they would have kept the mortgage rates at the same rate as 2012.

2. Buy now, mortgage rates will continue to rise so nab a house at a record low rate while you still can. Mortgage rate lows allow consumers to buy more expensive homes which allow home prices to rise, so they will rise.

Mortgage Regulation

After the housing bubble collapse the government tightened the regulations surrounding mortgage obtainment. Although this does mean that there will be less purchases and less first time buyers in the housing market, it also insures stability. When homeowners are more likely to pay back their loans healthy market growth is encouraged. Bubbles occur when people who shouldn’t qualify for mortgages qualify and massive amounts of people default on loans thereby causing a collapse of the whole pricing system. When less people default on their mortgage, prices remain steady and move upwards as wealth increases. All in all, this is a good time in the market to be a homeowner especially in states such as California. Cities up and down the state such as Los Angeles and up north in the Granite Bay real estate market, home values are rising.

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