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Reasons We're Seeing Housing Recovery

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Housing Recovery

We keep hearing that the housing market is making a recovery, but the proof is in the pudding, right?
Take a look at these statistics, and you'll agree that the market is headed in the right direction:

-  The Federal Housing Finance Agency says the national average home price will increase 5% this year.

-  Experts estimate that nearly 5 million existing homes will be sold in 2013, which would be 7.5% more than last year.

-  New home sales are expected to be 36% higher this year, when compared to 2012.

So, for just the second time since 2005, building permits and starts, sales of new and existing homes, and overall home prices are all likely to rise this year.  The housing market has been struggling ever since it collapsed in 2008, so what factors have contributed to the turnaround?

1. Fewer distressed properties
During the peak of the housing bubble, many Americans who could not afford to purchase a home received mortgage approval and bought one anyway. Lenders got greedy, and it backfired. Millions of homeowners lost their properties to foreclosure, and banks were left with vacant homes that they could not sell for even a fraction of the home's worth. The result was a housing market that was flooded with distressed properties. The only buyers interested in purchasing those homes were investors and do-it-yourselfers looking for a steal of a deal. The excess of homes meant there were more properties for sale than there were people interested in buying them, which caused home prices to plummet. Last year, 1 out of every 3 sales was either a foreclosure or a short sale. In 2013, distressed sales should only account for 1 in 5 home sales.

2. Lack of inventory
These days, there are more buyers interested in purchasing a home then there are properties for sale. At the current sales rate, it would only take 4.2 months for all of the homes currently listed across the nation to sell. Inventory hasn't been this low since April 2005. That lack of inventory has driven home prices higher, and many buyers are being forced to outbid their competitors to get a home. After the housing market collapsed, many homeowners found themselves owing more on their mortgage than the home was worth. These “underwater borrowers” are financially unable to sell their homes. So, fewer homeowners are listing their homes for sale now than in years past, and the market is no longer flooded with distressed properties – meaning we’re seeing a seller’s market.

3. More new home starts
While buyers may not like bidding wars, a lack of inventory is good news for home builders. Across the nation, builders who specialize in new home construction have noticed an increased demand, so they are breaking ground on new homes as quickly as possible. Experts estimate 500,000 new homes will be built this year, and that helps the housing market multiple ways. First, it creates more inventory, so more buyers will be able to find something within their price range. Second, it increases the workload for everyone involved in building a home – like the builders, the architects, the appliance makers, the furniture stores, the carpet manufacturers, and the landscapers.  

4. Increased consumer confidence
When you add up all of the benefits of the three reasons listed above, the end result is increased consumer confidence. As the economy recovers, more Americans begin to have job security. For homeowners who are behind in their payments, the financial stability allows them to catch up and avoid foreclosure. For consumers who were already stable with their finances, they’re now more likely to make a large purchase, like a new home. Since inventory is low, home prices will continue to rise, and may get high enough that some underwater borrowers who previously couldn't list their home can now afford to sell it. In the meantime, new home sales will increase (and create more jobs in the industries we mentioned above).

A full housing recovery is still a long way away, but if current trends continue, the end is at least in sight!


 
 


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