by Xinhua writer Jiang Xufeng
WASHINGTON, Aug. 25 (Xinhua) -- The revival of the U.S. housing market starting last year is not all good news for Brian Ruppel, a realtor with Profound Realty Inc., a real estate brokerage based in U.S. state of Maryland, who has been struggling to help his clients compete with deep-pocketed investors in fierce bidding wars amid rising home prices.
"The housing recovery since last year has been nothing short of spectacular. I'm definitely seeing more business as the recovery takes hold," said Ruppel.
U.S. residential property market continues to prosper this year, as home prices, sales volume and construction activity all trend up, a promising sign for the long-troubled housing market and sub- par growth of the world's largest economy.
The strong housing market recovery is being driven by employment growth and still relatively low interest rates, said Susan Wachter, professor of real estate and finance at Wharton School, University of Pennsylvania.
"Very low mortgage rates and some improved availability of mortgage credit have provided a sizable boost to the demand for housing. That boost to demand from low mortgage rates and a relatively small inventory of homes on the market has resulted in rising house prices," David Stockton, a senior fellow at the Washington-based Peterson Institute for International Economics, told Xinhua, adding that prospective buyers are less fearful now of buying into a falling market against the backdrop of the firming of home prices.
U.S. home prices have been rising at a faster clip than expected. The nation's median existing-home price for all housing types jumped to 213,500 U.S. dollars in July, which is 13.7 percent higher than one year ago and marks 17 consecutive months of year-on-year price increases. The median price has surged at double-digit rates for the past eight months, compared with the all-time high of 230,400 dollars set in July 2006, figures from the National Association of Realtors (NAR) showed.
Economists including Stockton believe that after acting as a considerable drag on the economic recovery, the housing sector has become an important driver of economic growth over the past year and a half. Improved construction activity has also led to modest gains in construction employment following large declines seen during the recession.
The home price gains have lifted millions of Americans out of negative equity, and they are in better positions to put their homes on the market and have enough left over for a down payment on their next bigger homes.
The number of so-called "underwater homeowners" dropped to 9.7 million by the end of the first quarter, down from 12.1 million at the end of 2011, according to data from leading U.S. market researcher CoreLogic. "I have clients in my own neighborhood that are moving up from a townhome to a single family. Just one year ago, they did not have enough equity to make this possible," said Ruppel, who lives in Clarksburg, Maryland, a town with a population of around 13,800 and about 50 kilometers from Washington D.C., the U.S. national capital.
However, the steep rising home prices in some American states including California and Florida have triggered worries from market observers like Ruppel. During the financial crisis, the U.S. average home price plummeted about 30 percent from its peak, but now it takes less than two years for the price to climb to near record high. "The rate of price increases is not sustainable. Some of my first-time buyers are finding it difficult to compete with investors who are still very active in the lower end of the market for homes less than 200,000 dollars. Going forward, I would much prefer to see price increases in the mid-single digits. That would signal a much more stable and solid market," said the 52-year-old realtor.
Many investors are gobbling up homes in the lower price range because they often offer the greatest return as rental properties. These properties are also popular with young first-time homebuyers because of their limited budgets, Ruppel explained.
With the nation's housing market gaining steam and cash-rich domestic and foreign house hunters eyeing U.S. properties, competition in the ultra-competitive market is heating up.
"I have one client who lost five bidding wars before finally winning one. By the time it closes, it is a 5 to 6 months journey for us. Agents and buyers need to be very patient," said Ruppel. "Hopefully, if prices continue to rise, investor interest will decline. This should make it easier for the owner-occupant buyers to obtain properties," said Ruppel, who believed that listing agents currently are often able to get contracts in days or even hours if the property is under 400,000 dollars and in a desirable area.
However, U.S. housing sector is not a unitary market, and housing prices may vary from city to city due to different supply and demand for homes and local economic performance.
"There may be a few pockets of overpricing in U.S. housing markets, but on the whole house prices are in reasonable alignment with incomes and with rents. Of course, continued house price appreciation at the rates we have seen over the past year or so would begin to raise more serious concerns about house price valuations," said Stockton, the former chief economist of U.S. Federal Reserve.
The view is echoed by Ruppel, who said that "nationally, I believe there are pockets where values are a little stretched in the short term. This is especially true in areas where there are more foreclosures yet to hit the market or new construction can ramp up quickly. Locally, I think most areas are still very affordable."
The housing market in Washington D.C. and neighboring cities is traditionally more stable than states like California and Florida, famous for their vacation and beach houses whose values halved after the housing bubble burst in 2006.
In addition, the overall foreclosure picture in the nation has improved significantly over the past years despite various improvement paces in different states. After the onset of the financial crisis, millions of Americans were forced out of their homes through foreclosures, a procedure in which banks evict homeowners from their properties due to their inability to make monthly mortgage payments.
A total of 801,359 properties foreclosure filings were reported in the first half of this year, a drop of 19 percent from the previous six months or down 23 percent from the first half of 2012, revealed figures from RealtyTrac, a leading U.S. real estate information company.
"The decline in foreclosures has resulted from several influences. The overall improvement in the U.S. labor market over the past year has helped. The economy is adding about 200,000 jobs per month, and the unemployment rate has been moving down. As a result, fewer households are finding themselves without a job and in financial trouble," argued Stockton.
"Another factor is just the passage of time. Those people who took out risky mortgages at the height of the bubble in the 2004 to 2007 period have probably already experienced foreclosure. With credit standards having been tightened considerably since the crisis got under way, there are fewer households with vulnerable mortgages and thus fewer foreclosures. At this point, the peak of the foreclosure crisis has passed," Stockton contended.
Ruppel is noticing more bank-owned foreclosure homes hitting the market, as the banks are certainly trying to take advantage of rising prices and buyer demand and to keep their books cleared. "On the local level, if the market is slow, the influx of foreclosure listings can suppress prices in the short term. If the market is hot, these listings can provide much-needed inventory," said Ruppel.
Foreclosures were sold for an average discount of 16 percent below market value in July, NAR data showed.
U.S. homebuyers are facing a new dilemma due to the recent spike in mortgage interest rates after they dropped to an all-time low this spring. Federal Reserve Chairman Ben Bernanke hinted in May that the U.S. central bank later this year might start tapering off its massive asset buying program, which aims at reducing long-term interest rates and boosting lending activity. A homebuyer who was quoted a 3.4 percent 30-year mortgage rate in April has to accept a 4.4 percent rate for the same loan now.
The major risk for U.S. housing sector recovery is "a spike in interest rates which may come from tapering," Wachter, the professor with the Wharton School, University of Pennsylvania, told Xinhua.
"One important challenge to the housing sector going forward will be the increase in mortgage interest rates that has occurred over the past few months -- about one percentage point. Although the increase in mortgage rates to date is not likely to completely derail the recovery in housing, there can be little doubt that the backup in rates will slow that recovery. Any further significant rise in rates would pose more serious risks to the sustainability of the housing recovery," said Stockton.
U.S. mortgage interest rates have risen to the highest level in two years, pushing some potential buyers off the sidelines.
"The initial rise in interest rates provided strong incentive for closing deals. However, further rate increases will diminish the pool of eligible buyers," cautioned Lawrence Yun, NAR chief economist.
Ruppel can also feel homebuyers' uneasiness stirred by the interest rate spike, noting that "most clients are concerned about the rising rates. They believe that rates are unlikely to move back down significantly any time soon. But the higher rates are not stopping most potential buyers from looking for homes. Depending on their financial situations, they may have to look at slightly lower priced properties."