Repeat business

Last week it was reported that repeat buyers are contributing to the recovery of the real estate market. Many have purchased homes during the tough times of the downturn but are now selling in improved market conditions.

By appreciating property values and low mortgage rates, this is providing homeowners the ability to relocate. And now, other homeowners who have been waiting for home prices to increase to sell are now listing their homes.

Repeat home buyers accounted for 54% of sales of existing properties in June. This is an increase from 49% since last year according to the National Association of Realtors (NAR). First-time buyers accounted for 29% of home sales, which is a decrease of three percentage points in the past year.

Typically, they account for 40% of home buyers. Tighter lending requirements and a shortage of lower priced homes are contributing to this development. As earlier reported, first-time buyers are a key component of the real estate market recovery.

Repeat buyers are strengthening their position as rising home prices are increasing household wealth enabling the purchase of larger properties or decreasing the amount of financing for comparable or smaller homes.

The S&P/Case Shiller index of home prices in 20 U.S. cities has been rising from month-to-month since February of 2012. This index was up 16.5% in May from the more than a decade low that was set in March of 2012. But it remains 24.4% below the record rate at the peak of the housing market in July of 2006.

Home-buyer confidence continues to rise prompting repeat buyers to return to the market. A survey by Fannie Mae in July revealed that 53% of respondents believe home prices will increase in the next 12 months. Buyer confidence was further supported by sustainable growth in the U.S. economy and signs of strengthening in some international markets (i.e. China’s industrial output increased more than forecasted last month and the fact that U.K. exports increased to a record level in the second quarter of this year).

According to NAR, 81% of repeat buyers financed their home purchases in 2012 compared to 96% of first-time buyers.  This gives the repeat buyers an advantage in some home-bidding situations.

As the job market improves, it will improve the ability of first-time buyers to purchase a home.

Home prices are increasing, but not at the rate we have seen in the past year. Home prices in June increased 11.9% since last year. Prices are unchanged from the year-over-year gain recorded in May according to Corelogic. Prices in June increased by 0.6 % from May on a seasonally adjusted basis which is the smallest increase in six months according to Capital Economics.

A slowing rate in the increase of home prices is not a problem and should allay the concerns of those who worry over housing bubbles. The reasons why price gains may be more moderate. Home prices relative to wages and rents will no longer look “undervalued” as they have appeared since 2011. Increases in mortgage rates have put some buyers on a holding pattern while they reevaluate their options. Additionally, some of the causes of significant price gains are becoming less of an influence (i.e.  fewer distressed properties, fewer investors, and home inventory is starting to increase).

According to ZipRealty, the number of new home listings between mid-June and mid-July in 24 metro’s rose 14% compared with time last year. Typically, home inventory decreases in those summer months.

 

Mary Ann Clark is a Realtor with Coldwell Banker at 177 West Putnam Avenue in Greenwich. Questions or comments may be emailed to [email protected]

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