Why Home Prices are Rising

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 A big drop in inventories of for-sale homes across the nation has led to a buying frenzy in some sought-after neighborhoods, real estate professionals report. A gradual gain in home prices is also following suit, they say.

Last week, the National Association of REALTORS® reported an increase in pending home sales in every region in the country. The number of contracts signed in May for existing homes jumped 13 percent from a year ago, according to NAR. 

NAR projects a 3 percent nationwide rise in existing-home prices this year and a 5.7 percent rise next year. 

But more buyers are being met with a shrinking supply of homes on the market. New construction has slowed dramatically—to record lows—the last few years. A backlog of distressed homes have not yet hit the market. And many home owners are waiting to list their homes for sale until prices rise more. 

“In the Atlanta area, we are 40 percent below where inventory was this time last year,” Debra Bradley, managing broker for Coldwell Banker Residential Brokerage in Buckhead, Ga., told Forbes.com “Generally inventory goes up this time of year, not down.” 

Inventories of for-sale homes appear to be lowest for less expensive properties, at which investors and first-time home buyers often buy, real estate professionals report. 

“It’s different today for a buyer being in the market,” says Rick Davidson, Century 21 Real Estate chief executive. “They might not find that deal of the century that they may have expected to find.”

Several housing markets are now reporting multiple offers and bidding wars surfacing, due to the lack of inventory in some markets. 

“Most houses below $250,000 priced realistically are attracting large numbers of offers in a short time, and many exceed the asking price,” says Mike Orr, director of the Center for Real Estate Theory and Practice at the W. P. Carey School of Business. 

Industry insiders appear less concerned about the shadow inventory of distressed homes that have yet to hit the market. 

“It’s not being let out to the market in bulk,” Beth Butler, president of ONE Sotheby’s International Realty in Miami, told Forbes.com. “It’s coming slowly and it’s not seriously impacting the market one way or the other. Truth be told we could use the inventory!”

Source: “The Housing Market's Latest Problem: Lack Of Inventory,” Forbes.com (June 28, 2012)