Home Prices Increase As Inventories Shrink

The recent year-over-year gain in home prices could be the start of an actual recovery in home values, unlike the three phony recoveries over the past couple of years. According to data from S&P/Case-Shillers, 20-city home prices in the 20 major metropolitan areas tracked increased by 0.5% during the month of June, when compared to the previous year. That’s the first year-over-year increase seen in the last 21 months.

In every year throughout the last three years, the price of homes increased during the busy buying season of the summer and would then fall off during the slow winter and fall seasons. This year might prove to be different. Many economists believe that the low inventories of both new and existing homes, coupled with increased demand could prevent home prices from dropping below their past lows.

The report showed that, while on average, prices increased in the 20 major markets; however, those increases weren’t seen in all markets.For instance, Phoenix reported an increase in home values by 14% when compared to the previous year. In contrast, the value of homes in the Atlanta metropolitan area fell by 12% over the same 12-month time frame. Five other metropolitan areas showed a year-over-year decline  in home prices, but overall the majority of the markets tracked showed steady increases.

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The housing market still has many major challenges that are hindering recovery, such as a large number of borrowers that are underwater on their mortgages, an economy that has failed to produce jobs or wage increases to meet the rate of inflation, and stricter lending standards preventing refinancing and home purchases.

In a recent report issued by the National Association of Realtors that addresses the issue of bank’s lending standards, 53% of home loans were issued to borrowers that had a credit score of 740 or higher during the month of August. Nearly 3 out of 4 home loans purchased through Fannie Mae and Freddie Mac were issued to borrowers with 740 or above credit scores, according to NAR.

Home loans that are backed by the Federal Housing Administration were issued to borrowers with an average credit score of 669, which is several points higher than similar loans originated to borrowers during 2001 with average scores of 656.

Many economists are hopeful that the recent wave of solid trends in the housing market will help with the job growth, not only in construction fields, but in complimenting industries, such as transportation, factory jobs, and professional services.

Texas builder LGI Homes is creating construction jobs in Texas, including Austin, Houston, Dallas-Ft. Worth, and San Antonio.

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