WASHINGTON -- A jump in sales of previously occupied homes and further gains in home construction suggest that the U.S. housing recovery is gaining momentum.
Sales of previously occupied homes rose 7.8 percent in August from July to a seasonally adjusted annual rate of 4.82 million, the National Association of Realtors said Wednesday. That's the highest level since May 2010, when sales were aided by a federal homebuying tax credit.
At the same time, builders broke ground on 2.3 percent more homes and apartments in August than July. The Commerce Department said the annual rate of construction rose to a seasonally adjusted 750,000. The increase was driven the best rate of single-family home construction since April 2010.
The two reports come amid other signs of steady progress in the housing market after years of stagnation. New-home sales are up, builder confidence is at its highest level in more than six years and increases in home prices appear to be sustainable.
"The U.S. housing recovery is for real," said Sal Guatieri, an economist at BMO Capital Markets, in a note to clients. "Great affordability, pent-up demand and strong investor interest in rental units are driving the market."
The broader economy is also likely to benefit. When home prices rise, Americans typically feel wealthier and spend more. Consumer spending drives 70 percent of the economic growth.
And the Federal Reserve's plan to spend $40 billion a month on mortgage-backed securities to keep mortgage rates low "can only help," Guatieri added.
Still, home sales and housing starts are rising from depressed levels. Sales of previously occupied homes remain below the more than 5.5 million that economists consider consistent with a healthy market.
The number of first-time homebuyers, who are critical to a housing rebound, slipped to 31 percent from 34 percent. In a typical market, that figure is usually closer to 40 percent. Strict credit standards are making it harder for many first-time buyers to qualify for mortgages.
More Americans appear to be taking advantage of near-record low mortgage rates and prices that are, on average, much lower than they were six years ago.
Sales might be higher if more homes were available, the Realtors' group said. The limited supply is helping to lift prices. There were 2.47 million homes available for sale in August. It would take just over six months to exhaust that supply at the current sales pace. That's the typical pace in a healthy market.
Homes are selling more quickly than a year ago. The median amount of time that a home spent on the market was 70 days in August, the Realtors' group said. A year ago, the median time frame was 92 days.
The median home price dipped in August to $187,400, but that is 9.5 percent higher than August 2011. That's the largest year-over-year price increase since January 2006.
America's Most Affordable Housing Markets
U.S. Home Sales Jump to Highest Since May 2010
Home price as percentage of income: 152% Median home price: $99,000 Median family income: $65,300
Lansing is the first of five (six, if parts of the South Bend region are included) metropolitan areas located in Michigan to make this list. Home prices in the area are expected to rise by an average of 5.8 percent annually between 2012 and 2017, among the top third projected increases in the country. The median home price is just south of $99,000, or $60,000 less than the median home price in the United States.
Home price as percentage of family income: 152% Median home price: $108,000 Median family income: $70,900
The median home price in Appleton of $108,000 is higher than any metro area on this list, but it is still well below the U.S. median home price of $159,000. Home prices have consistently been cheap in the area for years. The median price between 2007 and 2012 only declined by 4.9 percent, far less than the national drop of 33.3 percent.
Home price as percentage of family income: 150% Median home price: $79,000 Median family income: $52,300
The median family income in Battle Creek of $52,300 is the 23rd lowest among all metro areas surveyed. But with home prices the third cheapest of all metro areas, buying a home is quite affordable. Home prices were relatively cheap before the economic downturn, too. Prices fell by 16.1 percent from their peak in the second quarter of 2006 to the first quarter of 2012, a far more modest decline than the nationwide home price drop of about 33 percent.
Home price as % of family income: 150% Median home price: $80,000 Median family income: $53,300
Homes in the Youngstown-Warren-Boardman area are affordable, even for those with modest incomes. While median family income in the region is $9,600 lower than the national median income, median home prices are even lower — the fifth lowest in the country.
Home price as percentage of family income: 139% Median home price: $79,000 Median family income: $56,900
Memphis is the only metropolitan area on this list not located in the Midwest. While home prices of $79,000 are the third lowest of all metropolitan areas measured, home prices are expected to rise at an annual rate of 6 percent between 2012 and 2017, more than 2 percentage points more than the national median. Home prices are expected to rise 8.6 percent next year alone, one of the biggest growth rates in the country.
Home price as percentage of family income: 133% Median home price: $95,000 Median family income: $71,600
In the Warren-Troy-Farmington Hills metro area, the combined factors of high income and low home prices can make paying for a house easy. The median family income of $71,600 is the highest on this list and nearly $20,000 higher than the nearby Detroit metro. Furthermore, the median home price of $95,000, which has fallen 40.9 percent since it reached its peak in the second quarter of 2005, means that homes have become a bargain for those who can afford to buy one in this shaky economy.
Home price as percentage of family income: 132% Median home price: $80,000 Median family income: $60,000
Median home prices in Rockford are only expected to rise by 2.4 percent in 2013, less than the 5 percent price increase expected nationally. However, between 2012 and 2017, home prices are expected to grow at an annualized rate of 4.2 percent, besting the U.S. rate of 3.9 percent.
Home price as percentage of family income: 121% Median home price: $69,000 Median family income: $57,300
The median monthly mortgage payment for a house in South Bend is only 5.52 percent of the median monthly income. This is the only metro area in the United States, besides Detroit, where mortgage payments are less than 6 percent of median income.
Home price as percentage of family income: 79% Median home price: $41,000 Median family income: $51,900
While home prices were already cheap in Detroit before the housing downturn, they became even cheaper after. Home prices between the first quarter of 2007 and the first quarter of 2012 fell a whopping 53.7 percent, or 14.3 percent annually — the 10th-largest drop of all metro areas surveyed. With a median home price that is $28,000 lower than any other metro area reviewed, a median mortgage payment is only 3.6 percent of monthly income.
One reason for the price gain is that sales of foreclosed homes and so-called short sales have declined. A short sale is when the seller owes more on the mortgage than the home is worth. Both foreclosure and short sales occur at steep discounts and can drag down overall home prices.
The lower supply of homes has boosted demand for new homes, which has made builders more confident in future sales.
Applications for building permits, a good sign of future construction, dipped in August to an annual rate of 803,000. Still, permits reached a four-year high of 811,000 in July, which was revised higher.
"Since builders are not taking out permits because it is fun to visit their local government office and pay fees, we can conclude that there should be a solid rise in construction in the months to come," said Joel Naroff, chief economist for Naroff Economics Advisors.
Jim O'Sullivan, chief U.S. economist at High Frequency Economics, said home construction should add about 0.3 percentage point to overall economic growth this year.
"Housing is clearly in recovery mode," Sullivan said.
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