here is the real estate market going? Have we hit bottom? Strong recovery ahead? Polish your crystal ball and join me in a look at some interesting numbers.
You’ll get to look at four sets of numbers, give them some thought and decide where the market is going. I’ll throw in a few thoughts myself.
1. Inventory of Homes for Sale
2. Affordability of Homes
3. Affordability of Homes for First-Time Homebuyers
4. Percent of Homeownership
In a healthy real estate market, home prices rise and people can afford to buy. Let’s sample a few statistics and get a feel for what’s ahead.
Economics 101 teaches us that a healthy market is influenced by the relationship between supply and demand. When supply dominates, prices drop and sales jump up dramatically. This didn’t happen – why?
The law of supply and demand worked to lower prices but not increase sales. In my humble opinion, the reason that sales failed to jump is that real estate is not a consumer good. Most things you buy are used and then thrown away. Real estate is different. The buyer expects to sell his home at a profit. Dropping prices are considered an advantage to the buyer only when accompanied by an expectation that prices will rebound.
This brings us to our first statistic - Inventory of Homes for Sale.
Chart shows that homes on the market have dropped in the Triangle area of North Carolina from 11,244 in June 2008 to 6,128 last month. This should help firm up prices and remove the fear of loss from the market.
Demand requires a desire to own a home and the ability to afford to buy. Desire can be difficult to measure, but a formula exists to determine if people have the money to buy. Formula considers relationship between cost of home and family income to create an index number that can be compared from year to year.
The Home Affordability Index looks at the market as a whole.
The annual number for 2009 was 169.4 skyrocketed to 205.9 for the first month of 2012.
Over 30 percent of homebuyers are buying for the first time so let us look at the Home Affordability Index for them. This number will always be lower since they have lower incomes.
Note that the index improved from 111.9 in 2009 to a strong 135.8 for the first quarter of 2012. Another good sign.
Can anything dampen our enthusiasm for the near future of the housing market? Let’s look at the last number before we decide.
What percentage of the population owns a home? This number shows the result of all political, economic and personal forces at play in the real estate market.
Historically, about 64% of the population owned their own home. During the period of easy money the percentage shot up to 69%. Last quarter we were at 65.5%.
Some of you will look at this data and say there’s a lot of upward potential to reach 69% again. Others will say there’s still room to drop to reach the historical norm.
After considering the above, what do you predict for the housing market?
Loan Officer and Branch Manager
CrossCountry Mortgage Inc.
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