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Home Prices Trend Up In Most Major Metros

A recent survey conducted by the National Association of Realtors (NAR) suggests that rising home prices have become a popular trend in most major metropolitan areas — good news for those flipping houses. According to CNBC, “Flipping returns, the gross return on investment, increased to nearly 36 percent, up from 24 percent one year ago.” Real estate investors, like our partners over at CT Homes, should find that today’s existing inventory offers higher earnings potential.

According to the NAR, single-family home price increases were ubiquitous with nearly every major metro area by the end of the second quarter. Subsequently, 93 percent of the markets included in the NAR study, or 163 out of 176, saw closing prices surpass numbers recorded at the same time last year. Experts attribute gains in the last 12 months to increased demand and a distinct lack of inventory. Having said that, market conditions have prevented just 13 metros (seven percent) from realizing similar price increases.

As the U.S. economy continues to strengthen, a number of markets have been able to make up a lot of ground that was lost to the recession. In fact, 85 percent of the metros included in the NAR study saw their situation improve from the first quarter to the second quarter. Of those markets that saw prices increase, 34 (19 percent) experienced double-digit gains. By the end of the first quarter of this year, however, a total of 51 metros realized double-digit price increases.

According to Lawrence Yun, the NAR’s chief economist, the last few months have coincided with significant changes. Most would agree that the housing market has really gained a lot of traction, and the recent momentum is otherwise sustainable. “Steady rent increases, the slow rise in mortgage rates and stronger local job markets fueled demand throughout most of the country this spring,” he said. “While this led to a boost in sales paces not seen since before the downturn, overall supply failed to keep up and pushed prices higher in a majority of metro areas.”

While increasing prices are typically a good indicator of a city’s performance, they are not without their concerns. Affordability has certainly taken a hit across the board. “With home prices and rents continuing to rise and wages showing only modest growth, declining affordability remains a hurdle for renters considering homeownership — especially in higher-priced markets,” said Yun.

To put things into perspective, anyone looking to buy a home at the national median price would need to make upwards of $49,195 a year if they only put down five percent. According to the NAR, “a 10 percent down payment would require an income of $46,605, and $41,427 would be needed for a 20 percent down payment.”

By the end of the second quarter in 2014, the national median existing single-family home price was $212,000. Over a 12-month period, single-family homes saw an 8.2 percent increase in home prices, and are now in the neighborhood of $229,400. Conversely, the median price during the first quarter of this year increased 7.1 percent from the previous year.

Price gains are incredibly localized, and dependent on a number of factors. However, there are a select few cities that have separated themselves from the pack. Not surprisingly, four out of the five most expensive housing markets in the second quarter were in California. San Jose tops the list, where the median existing single-family price was as high as $980,000. Rounding out the top five most expensive cities were:

Again, price increases are dependent on a number of factors, and there are certainly areas that that failed to preform at the same level of those mentioned in the above list. The following represents the opposite end of the spectrum, where housing prices are the lowest:

  • Cumberland, MD ($82,400)
  • Youngstown-Warren-Boardman, OH ($85,000)
  • Rockford, IL ($94,700)
  • Decatur, IL ($96,000)
  • Elmira, NY ($98,300)

Despite a rise in the national median existing single-family home price, the American people made it clear that homeownership remains a top priority. Accordingly, total existing-home sales increased simultaneously with prices. By the end of the second quarter of this year, total existing-home sales reached a seasonally adjusted annual rate of 5.30 million. That is a 6.6 percent increase from the first quarter, when total existing-home sales topped out at 4.97 million. The rise in prices, for the moment, doesn’t seem to be scaring away would-be buyers.

Of the country’s four most prominent regions, total existing-home sales increased in all but the South, where sales dropped 1.1 percent from the first to the second quarter. Over that time, the Northeast saw a 10.3 percent increase, home sales climbed 8.1 percent in the West, and the Midwest topped the list with an increase of 13.4 percent. Every region, however, saw their average price increase over the same time.

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