Home Prices Up for Eighth Consecutive Month on Growing Demand, Limited Inventory

Existing home sales increased 2.1 percent on a seasonally adjusted basis in October according to data released today by the National Association of Realtors®.  In addition, declining levels of inventory contributed to a continued increase in home prices.

Completed sales of existing homes including single-family homes, townhomes, condominiums, and co-ops increased to an annual rate of 4.79 million from a rate of 4.69 million in September.  The latter rate was revised downward from an original estimate of 4.75 million.  October sales were 10.9 percent higher than the 4.32 million rate in October 2011.

Sales of single-family homes rose 1.9 percent to a seasonally adjusted annual rate of 4.22 million from 4.14 million in September and increased 9.6 percent from the 3.85 million rate in October 2011.  Condo and co-op sales rose 3.6 percent to 570,000 from 550,000 the previous month and are 21.3 percent higher than a year earlier.

Lawrence Yun, NAR chief economist, said the growing demand with limited inventory is pressuring home prices in much of the country.

The national median existing-home price for all housing types was $178,600 in October, which is 11.1 percent above a year ago.  This marks eight consecutive monthly year-over-year increases.  The last time this occurred was from October 2005 to May 2006.  The median existing single-family home price was $178,700 in October, 10.9 percent higher than a year ago.  The median existing condo price was $177,500 in October, up 11.7 percent from October 2011.

"Rising home prices have already resulted in a $760 billion growth in home equity during the past year," Yun said.  "Given that each percentage point of price appreciation translates into an additional $190 billion in home equity, we could see close to a $1 trillion gain next year."

Thirty-one percent of sales were to first-time homebuyers, down from 32 percent in September and 34 percent in October 2011.  Twenty-nine percent of sales were all cash, little changed from either previous period.  Cash sales are primarily sales to investors and they accounted for 20 percent of the market compared to 18 percent in September and in October 2011.

Sales of foreclosed properties and short sales each made up 12 percent of the existing home market in October.  Distressed home sales also had a combined market share of 24 percent in September and 28 percent in October 2011.   Foreclosures sold for an average discount of 20 percent below market value in October, while short sales were discounted 14 percent.

Total housing inventory at the end of October fell 1.4 percent to 2.14 million existing homes available for sale, a 5.4-month supply⁴ at the current sales pace, down from 5.6 months in September and 7.6 months a year earlier.  This is the lowest housing supply since February of 2006 when it was 5.2 months. 

Homes were on the market for a median of 71 days in October, one day more than in September and a 26 percent improvement from the median of 96 days in October 2011.  Thirty-two percent of homes sold in October were on the market for less than a month, while 20 percent were on the market for six months or longer.

Existing home sales in the Northeast fell 1.7 percent to an annual rate of 580,000 but remained 13.7 percent above the rate in October 2011.  Yun said that, while there was some impact from Hurricane Sandy which slammed the region late in the month, "most October transactions were completed by the time the storm hit.  We expect an impact on Northeastern home sales in the coming months from a pause and delays in storm-impacted regions."  The median price in the Northeast was $232,600, 4.6 percent higher than a year earlier.

Sales in the Midwest were up 1.8 percent to 1.11 million in October, 18.1 percent higher than one year earlier. The median price was up 10.6 percent on an annual basis to $145,600.

In the South, existing-home sales increased 2.1 percent to an annual pace of 1.92 million in October and are 11.0 percent higher than October 2011.  The median price in the South was $152,200, which is 8.2 percent above a year ago.

Western regional sales were up 4.4 percent to an annual rate of 1.18 million, 3.5 percent higher than a year earlier.  Due to tightening inventory the median price has risen 21.2 percent in the Region over the last year to a median of $242,100.

NAR President Gary Thomas said that today's record low interest rates which are contributing to the encouraging numbers won't last forever. "Inflationary pressures are expected to build during the next two years," he said.  As a result, mortgage interest rates will also rise with inflation.  Buyers who are currently held back by tight mortgage credit standards should work to improve their credit scores so they'll be able to qualify for a mortgage while conditions are still favorable."