Hot Spring Leads to a Hot Summer Ahead

By Gino Blefari, President & CEO, Intero Real Estate Services, Inc.

  The rise in prices means more homeowner equity, which could lead to more available inventory if more people jump off the fence and list their homes for sale. It could also lead to more buyers – especially first-timers – being priced out.

The positive pending home sales report means that the hot spring will spill into summer in many parts, since pending sales are an indicator of things to come. These are sales that are under contract but haven't closed.

Home prices

The S&P/Case-Shiller Home Price Indices released last week showed that from March to April, home prices gained 2.6% in the top 10 U.S. housing markets, and 2.5% in the top 20 markets.

Average prices rose 11.6% and 12.1% in each market in April from a year ago. As of the end of April, average home prices across the U.S. were back to levels of early 2004.

The data is important on a number of levels. For one, we see marked improvement in values, which helps not only the folks selling their homes, but also many of those with negative equity (depending on how severe it was). Further, this type of news creates a positive effect on consumer confidence, impacting homeowners who may have been waiting to sell until the market showed improvement.

Pending sales

The Pending Homes Sales Index from the National Association of Realtors showed a 6.7% increase in May from April, and is now up 12.1% from a year ago.

The uptick could be attributed to many buyers now feeling a sense of urgency to take advantage of interest rates before they rise too much, or to seize the day now before prices climb too far out of reach.

The thing to note about pending home sales is that they are a predictor of activity in coming months. So, according to the latest index, we're likely not going to see a drop off in sales in the next month or possibly even two.

Both rising prices and pending sales show that demand for housing is extremely healthy right now. In fact, the only big hurdle that keeps coming up month after month is the lack of available homes for sale. My guess is that as these indicators continue to rise, we will reach a tipping point in the next year where inventory bounces back to at least normal levels.

Then we'll really see our recovery in full growth mode.What do these latest reads on the market mean for the recovery? Two things.

The heat was on this past spring home-buying season as we're seeing the lagging numbers released in the last week. Home prices in April saw their biggest jump in seven years, while pending home sales soared to a six-year high in May.