August 2011 Market UpdateThe U.S. housing market has shown increased stability in home sales during 2011 compared to the previous year. Home prices are up 18% since their low in February. Signs of recovery remain mixed in the economy—employment and GDP came in less than expected while the strong points were in consumer confidence and new home starts.
The debt ceiling has been raised without any drastic changes to occur immediately. Although this prevents a sudden shock to a weakening recovery, over the next year and a half, experts anticipate considerable changes in how the government spends and collects money. The uncertainty of what is to come and how it will impact various industries will likely cause some to play on the safe side. The good news is that the government remains solvent and will be able to pay its bills without major disruptions.
Economic improvement typically spurs rising interest rates in order to rein in inflation. Although inflation has been a source of recent concern, the Fed appears confident it will remain in check for the near term. Meanwhile, buyers continue to benefit from historically favorable buying conditions, and sellers are encouraged by increased market stability.
Home sales in June were down 8.8% compared to the same month last year when the impact of the tax credit was at its peak. Compared to the previous month, however, sales held relatively steady at 0.8% below May’s numbers. NAR Chief Economist Lawrence Yun cites an unusually high number of contract cancellations the month before as an explanation for the slight easing of sales in June.
For the first time in a year, home prices are up year-over-year and month-over-month. This marks only the fourth time that prices have increased since June 2006. Home prices rebounded 8.9% in June with median home prices rising to $184,300. This is 0.8% above the year-ago level. Median home prices remain close to 2003–2004 levels. The combination of low prices and historically low interest rates means that home affordability is extremely favorable.
Inventory- Month's Supply
The supply of homes measured in months on the market at their current pace was up during June compared to May. This is keeping with inventory levels typically rise during the summer months. Month’s supply remained 24% below the peak of 12.5 months in July 2010 and 14% above April of 2010 when the home buyer tax credit was in full swing.
Source: National Association of Realtors
Mortgage rates remain at record lows after steadily declining in May, primarily due to uncertainty in the global and domestic economies. While these incredible rates represent a significant savings for home buyers, experts note that for the benefits to fully be realized, lending conditions must loosen to enable more buyers to take advantage of them. As overall economic activity gets back on track, rates will likely rise to keep inflation in check. In other words, the window of opportunity for buyers to lock in these historically low interest rates may not remain open much longer.
Source: Freddie Mac
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