We’ve been hearing for a while now that the Great Recession is over. By most economists’ accounts, we’ve been in a recovery since 2009. But if you ask the folks who live on Main Street -- Americans who work hard every day to put food on the table and get the mortgage paid -- we still have a long way to go.
And while people are starting to feel a little better about our economy, there’s still the dark cloud looming: the housing market.
Despite a slow, sluggish recovery, it seems there’s a light at the end of the tunnel. According to a recent report by Santa Ana, Calif.-based analytics firm CoreLogic, home prices increased 2 percent in May (the most recent data available) over May 2011. That marks the third consecutive monthly increase. Even better news is that June prices look like they will be roughly 1.4 percent above prices in May.
But the best news of all is those price increases are happening on the lower end of the market. CoreLogic reports that national home prices below 75 percent of the median increased 5.7 percent from a year ago. Comparatively, prices 125 percent or more of the national median only increased 1.8 percent.
What does it mean for you?
So what does this mean for homeowners? According to Lawrence Yun, chief economist at the National Association of Realtors, “The recovery is occurring despite excessively tight credit conditions and higher down payment requirements, which are negating the impact of record high affordability conditions.”
Of the largest 100 markets in the country, the five that are appreciating fastest are in states with the highest shares of negative equity coupled with high demand for distressed properties, according to CoreLogic. This high demand for distressed properties certainly contributes to the rise in prices at the lower end of the market, where short sales, foreclosures and REOs are prevalent.
The rise in home prices on the lower end of the market means homeowners on that end of the spectrum are beginning to see their home values – and equity – rise. In fact, the Federal Reserve recently indicated that home equity increased at the largest quarterly rate in over 60 years. The average equity borrowers have in their homes increased from 28.7 percent in the fourth quarter of 2011 to 29.5 percent in the first quarter of 2012. Finally, underwater homeowners in many parts of the country are heading toward the surface.
On the way to recovery -- but not there
But we’re not out of the woods yet. Home prices on the lower end of the market are on the rise due to tight market conditions – high demand and limited supply. Despite an overall decline in negative equity, many homeowners aren’t willing to sell their home for less than they paid. That’s keeping a lid on inventory for now, and helping to push up prices, but if those homeowners get desperate to sell, we could see home prices fall again.
For example, in Atlanta and Chicago, home prices fell 4.5 and 4.1 percent, respectively. Both metros have high and increasing inventories of distressed homes, and sellers keep listing properties for sale. In areas with high supply and little demand, prices have yet to rebound.
Simply put, we’re on the way to recovery, but we’re not there yet. It makes sense to be cautiously optimistic about the future of the housing market, but don’t expect miracles. The housing recovery is going to be just like the overall economic recovery: slow, and there may be some hiccups along the way.
The best advice? If you don’t have to sell, stay put. If you can, refinance and take advantage of today’s low rates to ease some of the pressure and wait until home prices rise further. It’s only a matter of time.