Falling Home Prices Are Good for Something, Right?by Tim Manni
For any borrowers out there who are currently “underwater” on their home loan, our title may be a little tough to read. But the truth is, low homes prices have contributed to the increased levels of affordability in today’s housing market.
The market’s improving affordability conditions (cheaper sales price and financing costs) have led to another monthly increase in existing-home sales. According to the National Association of Realtors (NAR), existing-home sales increased 9.4% in September — their highest level in over two years.
While we used to refer to GM, Ford, and Chrysler as the “Big Three,” that title could now be used to describe the three factors behind increased affordability: historically-low mortgage rates, low home prices, and the $8,000 first-time homebuyer tax credit. Fearing that the “Big Three” may become the “Big Two” by the end of November, the NAR is and has been quick to bestow recognition to the tax credit as the reason behind most of, if not all, the improvements in the housing market:
Lawrence Yun, NAR chief economist, said favorable conditions matched with a tax credit are boosting home sales. “Much of the momentum is from people responding to the first-time buyer tax credit, which is freeing many sellers to make a trade and buy another home,” he said. “We are hopeful the tax credit will be extended and possibly expanded to more buyers, at least through the middle of next year, because the rising sales momentum needs to continue for a few additional quarters until we reach a point of a self-sustaining recovery.”
You could say that statistics like increasing sales and lower home prices are what’s behind the “back and forth” expectations from consumers over the state of the housing market. While higher levels of existing-home sales serve to mop up the market’s inventory (good news, good expectations), it’s partially because of lower and still falling home prices (bad news, poor future expectations).
The NAR reports that the national median existing-home price dropped to $174,900 in September, down 8.5% from last year. Furthermore, as we wrote yesterday, the notion that home prices will continue to fall seems to be the general consensus. However, the NAR says that while prices are still declining, they’re falling at a slower pace than the double-digit declines of earlier this year.
Readers: Which camp are you in? Are falling home prices causing your equity to disappear, or are you enthused about the affordability that these prices bring?