Canada's Condominium Magazine
The National Association of Realtors (NAR) reported that home sales in the US were up 4.2 per cent in May, reaching a seasonally adjusted rated of 5.18 million. That’s the first time since November 2009 that that many homes changed hands, and before that it hadn’t happened since July 2007. The median price for a home was also up sharply, rising 15.4 per cent year over year. It reached $208,000 in May, the highest it has been in almost five years.
This might appear to be good news, after five years of plunging property values, rising mortgage defaults and low sales. But instead there is talk again of a “bubble” in the US housing market, showing just how difficult it is to achieve balance when things have been so far out of whack.
The growth in sales and prices is happening too quickly, some are saying, including the chief economist for the NAR. The rise in prices is driven in part by a drop in foreclosures—“only” 18 per cent of home sales in May were “distressed” sales; a year ago, 25 per cent of sales were in that category. Lawrence Yun told CNN Money that there needs to be a 50 per cent increase in home building in the US to moderate price growth.
May was the fifteenth month in a row in which year-over-year prices increased, and they are now at the same levels as just before the housing bubble burst in 2008. There is a difference, though: mortgage credit is tighter, much as it is in Canada, and there is a shortage of available housing, again, not unlike the situation in some markets in Canada. In the boom of 2008, credit was easy and housing was plentiful.
So now there are more buyers, encouraged by the improving economy and still-low interest rates, than there are sellers or new homes available.
First-time buyers, however, could have a more difficult time getting in. The US Federal Housing Administration (FHA), which plays a role similar to the Canada Mortgage and Housing Corporation here, has just raised its mortgage premiums again. According to CBS Moneywatch, some buyers today will pay twice as much for mortgage insurance as in 2010. And buyers with less than a 10 per cent down payment will no longer be able to cancel the insurance after a certain percentage of the principal on the mortgage has been paid.
First-time buyers, who are typically in the 24–34 age range, are faced with a number of hurdles to their ownership dreams. For one thing, they often have to compete with investors, who are snapping up a lot of lower-priced properties in cash deals, without FHA requirements to worry about. Many of the younger would-be buyers are also saddled with huge student loan debt, making it much harder to qualify, even for a high-ratio loan from the FHA.