Home prices rise 7.6% in Q3

Existing single-family home sales rose in 120 out of 149 metropolitan statistical areas based on closings in the third quarter of 2012 compared with the same quarter in 2011, according to the national Association of Realtors (NAR), while 29 areas had price declines. In the second quarter of 2012, 110 areas showed increases from a year earlier.

Lawrence Yun, NAR chief economist, said the growth in home prices gets down to supply and demand. "Housing inventories have been gradually trending down from a record set in the summer of 2007," he said. "Earlier this year, a broad equilibrium began to develop in most areas between home buyers and sellers, which led to a sustained upturn in home prices. We expect fairly normal appreciation patterns in 2013, but there is a risk of price acceleration if builders are unable to increase supply to meet the needs of our growing population and household formation."

Regionally, existing-home sales in the Northeast increased 1.7% in the third quarter and are 9.8% above the third quarter of 2011. The median existing single-family home price in the Northeast slipped 0.3% to $246,900 in the third quarter from a year ago.

In the Midwest, existing-home sales rose 5.2% in the third quarter and are 17.8% higher than a year ago. The median existing single-family home price in the Midwest increased 4.2% to $151,100 in the third quarter from the same quarter in 2011.

Existing-home sales in the South increased 5.4% in the third quarter and are 11.7% above the third quarter of 2011. The regional median existing single-family home price rose 5.7% to $165,400 in the third quarter from a year earlier.

In the West, existing-home sales slipped 1.2% in the third quarter due to limited supplies, but are 2.1% higher than a year ago. With the tight inventory, the median existing single-family home price in the West surged 20.2% to $247,400 in the third quarter from the third quarter of 2011.

The national median existing single-family home price was $186,100 in the third quarter, up 7.6% from $173,000 in the third quarter of 2011, which is the strongest year-over-year price increase since the first quarter of 2006, when the median price rose 9.4%. In the second quarter, the price increased 7.2% from a year earlier.

The median price is where half of the homes sold for more and half sold for less; medians are more typical than average prices, which are skewed higher by a relatively small share of upper-end transactions.

Some of the price gain resulted from a smaller share of distressed home sales in the market, but the higher prices significantly reflect a market recovery. Distressed homes -- foreclosures and short sales that generally sell at deep discounts -- accounted for 23% of second-quarter sales, down from 30% a year ago.

A separate breakout of income requirements to buy a home on a metro-area basis shows buyers in the vast majority of areas had ample income in the third quarter, assuming they could meet stringent mortgage credit standards.

Total existing-home sales, including single-family and condo, rose 3.2% to a seasonally adjusted annual rate of 4.68 million in the third quarter from 4.54 million in the second quarter, and were 10.3% higher than the 4.25 million pace during the third quarter of 2011. 

At the end of the third quarter, 2.32 million existing-homes were available for sale, which is 20% below the close of the third quarter of 2011 when 2.90 million homes were on the market.

According to Freddie Mac, the national commitment rate on a 30-year conventional fixed-rate mortgage averaged a record low 3.54% in the third quarter, down from 3.80%  in the second quarter and 4.31% in the third quarter of 2011.

NAR president Moe Veissi, broker-owner of Veissi & Associates in Miami, said affordability conditions are a big factor in rising sales. "Historically low mortgage interest rates are encouraging many buyers who were on the sidelines," he said. "Sales this year are notably higher than the levels seen in 2008 through 2011, so we're clearly in a recovery phase with rising sales, declining inventory and rising prices. Of course, the recovery would be stronger and more stable if we could return to safe but sensible mortgage underwriting standards."

A breakout of incomes required to purchase a median-priced existing single-family home by metro area shows the typical buyer had more income than necessary in the third quarter. Income amounts are determined using several down payment percentages, assuming a mortgage interest rate of 4% and 25% of gross income devoted to mortgage principal and interest.

The national median family income was $61,700 in the third quarter. However, to purchase a home at the national median price, a buyer making a 5% down payment would only need an income of $40,900. With a 10% down payment the required income is $38,700, while with 20% down the necessary income is $34,400. 

In the condo sector, metro area condominium and cooperative prices -- covering changes in 54 metro areas -- showed the national median existing-condo price was $180,800 in the third quarter, up 7.7% from the third quarter of 2011. Thirty-three metros showed increases in their median condo price from a year ago, and 21 areas had declines.

First-time buyers purchased 32% of all homes in the third quarter, down from 34% in the second quarter; they were 32% in the third quarter of 2011.

The share of all-cash home purchases was 27% in the third quarter, down from 29% in the second quarter and 29% in the third quarter of 2011. Investors, who make up the bulk of cash purchasers and compete with first-time buyers, accounted for 17% of all transactions in the third quarter, down from 19% in the second quarter and 20% a year ago.

"The modest decline in first-time buyers and investors shows the impact of limited inventory in the lower price ranges from a shrinking share of distressed homes, which are popular with both of these groups," Yun explained.