SOURCE: National Association of Realtors

National Association of Realtors

November 13, 2009 15:45 ET

Housing Recovery Predominantly in Lower End Homes

SAN DIEGO, CA--(Marketwire - November 13, 2009) - Reduced home prices and the first-time home buyer tax credit have helped dramatically boost the lower end housing market, according to a residential market update today at the 2009 REALTORS® Conference & Expo.

Lawrence Yun, National Association of Realtors® chief economist, said home sales continue to be dominated by lower priced homes. In fact, NAR data shows nearly 70 percent of homes sold in September were priced below $250,000.

One reason for the boost in sales in the lower end housing market is the home buyer tax credit. According to NAR data, first-time buyers currently account for nearly 45 percent of all home buyers.

"The housing market has become much more active at the lower end," said Yun. "The $8,000 home buyer tax credit has significantly helped the market and is having its intended impact of stimulating home sales, decreasing high home inventory levels and helping to stabilize home prices."

According to Yun, sales of homes priced below $100,000 are up 22.5 percent from a year ago. Sales in the upper end market are still slow, however; homes priced above $500,000 are up only 4 percent from last year.

Yun projects the home buyer tax credit will help raise home sales this year by 350,000 to 400,000 among first-time home buyers -- these are buyers who couldn't have purchased a home without the tax incentive. "The expansion of the tax credit into 2010 will help raise existing-home sales next year by as much as 15 percent and increase home prices by 3 to 5 percent," he said.

Increased affordability is also helping spur lower end home sales. In September, the national median existing home price was $174,900, down 8.5 percent from one year ago.

"Many first-time buyers who were previously priced out of the market are now taking advantage of the tax credit and favorable affordability conditions," said Yun. "However, for the housing market to fully recover we need to return to a period of normal, steady price growth and for that we need a steady supply of qualified buyers to continue to enter the housing market and bring down the inventory of available homes."

The good news, said Yun, is that there is still plenty of pent-up demand; he estimates there are roughly 16 million renters who are financially qualified and earn enough income to buy a median priced home. That is roughly 5 million more than there were in 2000, pre-housing boom, that could be released into the market and help bring down inventory levels.

The most recent NAR data shows a 7.8 months' supply of homes -- the lowest level in more than two years. For lower end homes priced below $100,000, there is currently a 5.4 months' supply of homes, far lower than the 14.3 months' supply for homes priced above $500,000. According to Yun, a consistent month's supply of less than 7 months is needed for home price stabilization.

"Inventory conditions are split at the different price levels, and we really need more inventory in the lower end price range, where inventories are tightest. The extension of the home buyer tax credit to current homeowners -- who may be trading up their first home for a larger one -- will hopefully help bring additional lower priced homes into the market," Yun said.

While first-time home buyers seem to be benefiting most in the current housing market, Yun said all homeowners will benefit from the reduction in housing inventories through increased home price stabilization.

"We're seeing early signs that prices are beginning to stabilize, but we aren't there yet," said Yun. "With the tax credit expansion to more qualifying buyers, prices in 2010 are expected to stabilize or even grow modestly."

The National Association of Realtors®, "The Voice for Real Estate," is America's largest trade association, representing 1.2 million members involved in all aspects of the residential and commercial real estate industries.

Information about NAR is available at www.realtor.org. This and other news releases are posted in the News Media section.

REALTOR® is a registered collective membership mark which may be used only by real estate professionals who are members of the NATIONAL ASSOCIATION OF REALTORS® and subscribe to its strict Code of Ethics. Not all real estate agents are REALTORS®. All REALTORS® are members of NAR.

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