As prices continued to decline during the fourth quarter of 2011 in most metropolitan areas of the U.S., housing affordability rose due not only to the lower prices but also because of record low interest rates. The National Association of Realtors® released its Housing Affordability Index (HAI) including a new annual metro-level housing affordability index which shows historically favorable conditions dominating across the country.
The median price of an existing single-family home rose in 29 out of 149 metropolitan statistical areas (MSAs) in the fourth quarter compared to the fourth quarter of 2010. Prices were unchanged in two MSAs and fell in 118. The national median existing home price was $163,500 in the fourth quarter compared to $170,600 one year earlier, a decrease of 4.2 percent. Distressed homes - foreclosures and short sales - sold for discounts averaging 15 to 20 percent and represented 30 percent of total sales compared to 34 percent during the same quarter of 2010. The median price of a condo was $160,800, down 1.7 percent from one year earlier.
The national HAI rose to a record high 184.5 in 2011. The Index base of 100 is defined as the point where a median-income household has exactly enough income to qualify for a median priced existing home with a 20 percent down payment and 25 percent of the income devoted to mortgage principal and interest payments. The higher the index, the greater the household purchasing power. For first-time buyers making small downpayments, the affordability levels are relatively lower.
Existing homes sales, including single-family houses and condos, increased 5.9 percent to a seasonally adjusted annual rate of 4.42 million compared to 4.17 million in the third quarter. This was 9.2 percent above the 4.04 million pace one year earlier.
Inventories of existing homes fell 21.2 percent over the period between Q4 2010 and Q4 201, dropping from 3.02 million homes for sale to 2.38 million
The share of all-cash home purchases in the fourth quarter was 29 percent, unchanged from the third quarter and up one percentage point from the fourth quarter of 2010. Investors, who are largely the all-cash purchasers, accounted for 19 percent of home sales in the third quarter virtually unchanged from the two earlier reporting periods. First-time buyers purchased 33 percent of homes in the fourth quarter again nearly unchanged from earlier quarters.
Sales rose in all four regions both from third quarter figures and those of one year earlier, but prices declined. The largest annual increase in sales was in the Midwest where sales were up 14.1 percent from Q4 2010. Quarter-over-quarter sales were up at least 3.8 percent in every region with the West showing the greatest increase at 8.1 percent. Median prices now range from $134,100 in the Midwest to $229,200 in the Northeast. .
Lawrence Yun, NAR chief economist, said the figures reflect greater home sales activity at lower price points. "Sales have risen strongly in lower price ranges from one year ago, while sales at the upper end remain sluggish," he said. "More importantly, we're seeing a consistent trend of declining inventory, which means supply and demand conditions are becoming more balanced in more areas, which will help stabilize home prices."
Metro areas with the greatest housing affordability conditions in 2011 include the Detroit-Warren-Livonia area of Michigan, with an index of 383.4; Toledo, Ohio, at 242.9; and Decatur, Ill., at 236.8. Only 24 out of 152 metros measured had an affordability index below 100 in 2011.
