Home prices rose nationwide by 6.3 percent in October 2012, on a year-over-year basis. It was the largest increase since June 2006, according to the most recent data from CoreLogic.
These figures are a good reminder that it’s still hard to generalize about housing. Some markets are up sharply amid big declines in price, while others are still soft, according to an article from The Wall Street Journal.
CoreLogic economists believe the housing recovery is geographically broad-based with almost all markets experiencing some appreciation. They said the housing recovery that began in early 2012 continues to gain momentum.
Reduced inventories and improving buyer demand both contribute to the stability and growth of home prices, which is essential to the long term health of the housing market.
Here are five reasons home prices have been rising:
Housing affordability is attractive- Because prices have fallen so far and mortgage rates are so low, buying a house is more affordable for some than renting. Many buyers judge their decision based on a monthly mortgage payment and current data shows that for an average-priced home, payments are a lot less than they were at the end of 2005.
Household formation is revving up- The U.S. is on track to add 1 million new homes this year, up from an average of 570,000 in the past five years, according to Bank of America economists.
Rents are rising- Buyers have more of a reason to get off the fence because of rising rents. Higher rents have also spurred more investor purchases of rentable properties.
The share of distressed sales- Foreclosures are down and banks are stepping up alternatives, by shifting short sales into a higher gear. The number of distressed sales is still high, but as they have fallen from their peak in many markets, prices are stabilizing.
Inventories of homes for sale have plunged- Inventories of newly constructed homes for sale are at their lowest levels in nearly 50 years. Inventories of existing homes for sale are approaching a 10-year low, and many homeowners haven’t listed their homes because they owe more than it’s worth. On the other hand, those with equity don’t want to accept big declines in prices. Low inventories have led to multiple offer situations, as rising demand leads more buyers to chase after fewer properties.
Sources: Wall Street Journal article “Five Reasons Home Prices Have Been Rising” from November 27, 2012 and RISMedia article “CoreLogic: Prices on Track for 7.1 Percent Increase” from December 6, 2012.