Home Sales Boosted by Increasing Demand, Supply Shortage

By Gretchen Wegrich

That national median home price rocketed to the highest year-over-year increase in the past seven years as an increasing number of metropolitan areas recorded higher median home sale values during the fourth quarter of 2012, reported the National Association of Realtors (NAR).

Driving the upward movement of home prices were several factors, including favorabler affordability conditions, rising rent rates, housing demand and new job creation, said Lawrence Yun, chief economist at NAR.

"Our population has been growing faster than overall housing stock, so supply and demand dynamics are very much at play," Yun said, adding, "Home sales are on a sustained uptrend, mortgage interest rates are hovering near record lows and unsold inventory is at the lowest level in twelve years."

In 132 of 152 metropolitan statistical areas, the median existing single-family home price rose during the fourth quarter of 2012, compared with the same quarter a year prior. Prices dropped in an additional 19 areas.

The existing single-family home price national median reached
$178,900, a 10 percent increase year-over-year. A 10 percent increase is the strongest year-to-year price increase since the fourth quarter of 2005, before the housing market collapsed. 

The price growth is attributed to a market scarcity of lower prices homes, which translates to fewer foreclosures. Distressed homes represented just 23% of fourth quarter sales, down 7 percent from the previous year, according to NAR.

Total existing home sales, which includes single-family homes and condominums, rose by 5 percent to 4.9 million in the fourth quarter of 2012, compared to 4.66 million during the same quarter in 2011. Existing home sales were up 12.1 percent.

There were 21.6 percent fewer existing homes for sale in the fourth quarter of 2012 as compared to a year prior. Unsold inventory has reached its lowest level since January 2001, reported NAR.

"Home prices overcorrected on the downside and homes in most of the counry were selling for less than replacement construction costs, which means they were undervalued," said Gary Thomas, president of NAR.

Additionally, Thomas noted, "Record low mortgage interest rates and slow but steady improvements in median family income combined to boost housing affordability conditions to the highest on record in 2012."

Existing home sales improved by region, with the greatest expansion happening in the West (5.9 percent). Here, limited housing supplies had the greatest impact.

Existing home sales increased 2.2 percent in the Northeast, 5.6 percent in the Midwest, and 5 percent in the South during the fourth quarter of 2012.

Affordability also peaked during 2012; the Housing Affordability Index reached a record high of 193.5 in 2012.

"The housing affordability index shows that the national median income of families was almost double the income needed to buy a median-rpiced home in 2012, so most buyers are able to stay well within their means," said Yun.

Gretchen Wegrich

Gretchen Wegrich is an editor at Lender411. She specializes in mortgage basics, personal finance and green living. She graduated with a bachelor's degree in writing from University of California, San Diego and previously worked at the Santa Cruz Sentinel. Contact her at gretchen@lender411com.