2013 is more than halfway over, and the housing market is starting to show signs of strengthening. During the first half of the year, we saw rising home prices, tight home inventories and increased sales activity. New figures from the U.S. Department of Commerce state new home sales are up 38 percent since last year and hit a five-year high this June.
According to several home pricing indexes, price appreciation has climbed by double-digits. Economists predict home prices will rise throughout the rest of the year but do say they should slow thanks to expected increased inventory and higher mortgage rates for the remainder of 2013.
Rising Home Prices Increases Inventory of Homes
Over the past couple of years, the housing market has seen a decline in the inventory of homes. Earlier this year, the inventory of homes was at a 12-year low, but experts say if you look at the month-to-month numbers, you will see numbers are beginning to rise. Generally, when inventory or market times are growing, prices are flat or down, but since June, all three aspects have been up.
The recent surge in the inventory of homes is thanks to the rising price of homes. This is causing more people to think about selling their homes and new construction is starting to take off once again. The rising price of homes is also cutting back on the investor interest because there aren’t as many bargains for them as there were a year ago. Some people are concerned that the rising of prices could hurt the housing market, but economists say the prices are still low compared to the bubble years. Home prices are currently not overvalued, and prices would have to rise at double-digit rates for several years to put the housing market back into bubble territory.
Mortgage Prices Expected to Climb
In the past two months, mortgage rates have increased. Economists believe they will continue to climb but it will be at a much slower rate.
Now, we all know that higher rates are going to make borrowing more expensive, but this isn’t sign that anyone should panic, because as long as interest rates are moving at a turtle’s pace, there’s no need for the mortgage jitters to set in.
The bottom line is that the housing market is affected by many other factors than rate, and, as Ilyce Glink so stated in a recent article from Yahoo Finance, “if a half a percent is the difference in affordability for you, you’re buying the wrong house. Buy a cheaper house!”
Foreclosure is on the Decline
Foreclosure numbers are on the decline nationwide. The number of foreclosures filed in the first part of 2013 is down 19 percent from the second part of 2012 and down 23 percent from the first part of 2012. In June, the number of foreclosures marked the lowest logged since December 2006. Real estate experts say we can still expect to see some flare-ups in areas where foreclosures undergo a judicial process such as New Jersey, Florida and New York. However, this is nothing that could overtake the housing market’s current momentum.
Underwater Homeowners Need to Rebound
Underwater homeowners are still causing the housing market to drag because they can’t participate in the market due to not having enough equity in their homes. This usually leads to tighter inventory and drives prices up. Experts say that the recent increase in prices is what will eventually allow them to enter the market. It will take several years of appreciating home prices to relieve the pressure on the 11.3 million borrowers nationwide.
Mortgage Finance Reform
Another aspect to keep an eye on is what happens with bills proposed by the Senate and the House to redo the government’s role in the finance market by eliminating mortgage firm giants Fannie Mae and Freddie Mac. On Tuesday August 6, President Obama traveled to Phoenix, the first place the President went after signing his $787 billion stimulus plan, to discuss the current state of the economy and the housing market.
“I believe that our housing system should operate where there’s a limited government role and private lending should be the backbone of the housing market. We’ve got to build a housing system that is durable and fair and rewards responsibility for generations to come,” said President Obama.
The House’s proposed bill focuses the privatization of the finance market – eliminate the government completing while the Senate’s proposed bill wants the government to have a limited role to insure mortgage securities.
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