Is the market for existing homes ready to turn a corner? The National Association of Realtors (NAR) believes so but the market may not recover in the way it typically has following recessions. However, homes are selling in many markets which means realtors are advertising more listings.
A new report from the NAR indicates that sales of existing properties could total 5.1 million units in 2011. Austin, TX, Baltimore, MD, and Chicago, IL, are just a few of the markets at the top of the list with home sales rates that far exceed last year’s activity.
NAR economists point to several trends that are fueling growth. As property values fall, investors have been buying up houses, especially in markets with a strong economy. The NAR reports that all-cash purchases of existing homes have increased to 35% of transactions, a record high and a clear indication of investor activity. There’s also been interest from international buyers who can make discounted purchases because of the weak value of the dollar. Buying activity may increase as mortgage interest rates rise and buyers rush to lock in a good price. NAR economists expect the interest rates to increase to 5.5% by the end of this year and to 6.0% in 2012.
At the same time, sales of new homes (pending contracts, not closings) are slow, still much lower than they were during the boom years. In addition, new homes are now being sold at a 30% premium rather than a 10–15% premium. This situation is expected to continue for another couple of years as banks sell off foreclosed properties at huge discounts. In some markets, these sales will make up 40% of the volume.
Rising prices in the rental market may also drive some consumers into home ownership. At some point, renters will decide that purchasing a deeply discounted house is a more cost-efficient use of funds.
These market realities should drive local realtors to increase advertising of existing properties. The typical NAR broker and broker associate had 10 transactions last year (either buy or sell side) and sales agents averaged 7 transactions. The value of each transaction has dropped since the start of the recession but these numbers were higher than they’d been in 2009 and aggressive marketing could generate additional activity in 2011.[Source: Yun, Lawrence. Housing Market and Economic Outlook. Chief Economist. NAR.org. 21 Jul. 2011. Web. 3 Aug. 2011]