Home Prices Stabilize

The housing market is showing signs of stabilizing with only a slight decline in existing home prices during the peak spring housing market, as well as a drop in the number of homes sold.

“Median home prices have been moving up and down in a relatively narrow range in many markets, which shows a stabilization trend,” said Lawrence Yun, chief economist for the National Association of Realtors, in a press release announcing the group’s latest quarterly report.

Signs the market has hit bottom may reassure home owners experiencing five years of declining property values, but at the same time the market is not likely to rebound rapidly. According to Yun, “The direction of the economy will be determined principally by the housing market recovery, and indications are now pointing toward only a modest recovery.”

The national median price for an existing single-family home was $171,900 in the second quarter of 2011, a 2.8 percent drop from $176,800 in the second quarter of 2010.  Prices fell year-over-year across 110 metropolitan areas, but rose in 41 markets. According to Yun, “Markets showing consistent price stability or increases are those with solid labor market conditions, such as in Washington, D.C., San Antonio, TX, or Fargo, ND.”

A significant drop in unemployment rates will be the key factor in the economic recovery, according to MillionaireCorner research. Investors with $1 million to $25 million said a drop in unemployment will be the most significant indicator that the economic recovery is underway. More than 80 percent identified increased employment as key ingredient to the recovery, and more than 60 percent looked for an unemployment rate below 6 percent.

Some of the regional variation in prices also relates to the level of foreclosed properties, which can artificially depress median home prices, said Yun. Distressed homes, which typically sell at a discount of about 20 percent, accounted for 33 percent of sales in the second quarter, down from 39 percent in the first quarter.

Investors accounted for a greater percentage of sales in the second quarter of 2011 -  ­19 percent, compared to 14 percent a year ago -  while the percentage of first-time home buyers fell year-over year from 46 percent of 35 percent. The share of all-cash home purchases was 30 percent, up 5 percent year-over-year.

Limited access to credit is holding back the housing market, said NAR President Ron Phipps. “People with good jobs, long-term plans and who are willing to stay well within their means deserve an opportunity to realize their American dream of home ownership,” said Phipps. “When banks return to normal and safe but sensible lending standards, housing will be able to contribute its traditional share to economic growth.”

Total existing home sales fell 5.4 percent to 4.86 million in the second quarter from 5.14 million in the first quarter.

Though home prices have been moderating, Yun said he believes the housing market should be much stronger. He explained, “With home prices in a broad trough and historically low mortgage interest rates, high housing affordability conditions and rising rents could stimulate a more rapid sales recovery if banks get bank into the business of lending to more creditworthy borrowers.”