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Local Home Prices Increase as the Supply of Homes Decreases

Home Prices Increase as the Supply of Homes Decreases

In months and years past, declining prices and a surplus of "for sale" signs enticed buyers into signing contracts. But market conditions are changing; home prices increased during 2012's second quarter.

Out of 147 metropolitan statistical areas, 110 saw the median existing single-family home price rise when compared to the number of closings reported a year ago. Three statistical areas saw no change, while 34 faced price declines. In comparison, the first quarter of 2012 had 74 areas across the country reporting price gains from the previous year, while in the second quarter of 2011 only 41 areas saw increases.

In the second quarter of 2012, the national median existing single-family home price rose 7.3 percent from the same time last year, from $169,100 to $181,500. The median price hasn't increased by so much since 2006, when the year-over-year increase in the first quarter rose 9.4 percent. First-time home buyers might not be enthusiastic about increasing prices, but the increase in equity is good news for homeowners.

Yet, the current median price is still 20.1 percent below the record-setting 2006 price; a lack of supply is one of the reasons the current market is far from breaking records. First-time buyers and investors are often in competition in the real estate market, since both groups are looking to buy affordable homes. In the second quarter of 2012, first-time buyers bought 34 percent of all homes sold, while investors were responsible for 19 percent of all transactions. The second quarter of 2011 saw similar enthusiasm from investors and first-time buyers; they represented 19 percent and 35 percent of the market, respectively. The lack of movement in the numbers could signify that both groups of buyers still have confidence in the housing market.

The consequence of so many buyers targeting one segment of the housing market is a decrease in supply. At the end of this year's second quarter, 2.39 million existing homes were on the market. This is 24.4 percent below last year's second quarter when 3.16 million homes were on the market and far below the record-breaking 4.04 million homes for sale in the summer of 2007. There was also a decline in distressed home sales; foreclosures and discounted short sales accounted for 26 percent of all existing home sales, down 33 percent from 2011 levels.