According to the latest quarterly report from the National Association of Realtors (NAR), several metropolitan areas had higher median home prices in Q4 of 2012. In fact, 2012 proved to have the strongest year-over-year increase that we've seen in the past 7 years. On top of that, housing affordability in metro areas has reached record high conditions.
“Home sales are on a sustained uptrend, mortgage interest rates are hovering near record lows and unsold inventory is at the lowest level in 12 years,” said Lawrence Yun, NAR chief economist. “Home sales are being fueled by a pent-up demand and job creation, along with still favorable affordability conditions and rents rising at faster rates. Our population has been growing faster than overall housing stock, so supply and demand dynamics are very much at play.”
He also said that in order to relieve some of the pressure in the market, there needs to be more housing construction. This will help to keep home prices from overheating.
There are always many factors that could contribute to skewing the price growth percentages. Data is taken from across the nation to create these statistics. Sometimes you will see average prices, but medians are more typical than average prices. Taking the median price is where half of the homes sold for more and half sold for less.
In Q4, the national median existing single-family home price was $178,900. This figure is an increase of 10% from $162,600 in Q4 of 2011.
According to Freddie Mac, the average 30-year fixed-rate mortgage hit a record low 3.36% in Q4 of 2012, which is down from 3.54% in Q3, and 4.01% in Q4 of 2011.
“In reality, home prices over-corrected on the downside and homes in most of the country were selling for less than replacement construction costs, which means they were undervalued,” said NAR President Gary Thomas, broker-owner of Evergreen Realty in Villa Park, CA. “At the same time we've had record low mortgage interest rates and slow but steady improvements in median family income. Combined, these factors boosted housing affordability conditions to the highest on record in 2012.”
If you are familiar with how the Housing Affordability Index works, you'll know that it is calculated based on the relationship between the median home price, the median family income, and the average effective mortgage interest rate. A high index means a strong household purchasing power; the higher the better. Therefore, an index of 100 is defined as the middle ground. At this point, a median-income household has exactly enough income to qualify for a median-priced home, (with a 20% down-payment and 25% of their gross income being devoted to their mortgage payment). The affordability levels are lower for first-time buyers who make small down-payments.
That said, the NAR's annual Housing Affordability Index rose to a record high 193.5 in 2012, which is up from 186.4 in 2011.
“The housing affordability index shows that the national median income of families was almost double the income needed to buy a median-priced home in 2012, so most buyers are able to stay well within their means,” Yun said. “Even with rising home prices, conditions are expected to stay very favorable with the index averaging 161 in 2013, which would be the third best on record.”
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