Things are looking up
Why the U.S. real estate cycle is finally on the rise
You’ve probably heard investors or market experts mention the term “real estate cycle.” This term refers to the 18-year patterns of peaks and valleys first introduced by real estate economist Homer Hoyt in the 1930s, and then expanded by Fred E. Foldvary, who used Holt’s theory to predict the 2008 real estate crash.
While the real estate market isn’t on a strict clockwork cycle of 18 years, the pattern is fairly reliable—and, more importantly, it points to trends and signs that sharp investors can watch for in order to profit.
What are these trends? Here, we’ll take a closer look at the signs of a healing market.
The real estate sector picks up the pace
During the second quarter of 2012, median home prices in the United States have increased at a rate last seen in 2006. The National Association of Realtors (NAR) recently released its data on the U.S. housing market—and the figures are promising.
Some of the important trends highlighted by this data include:
- More Americans can afford to buy homes
- Cost increases are leading to improved equity for homeowners
- A drop in real estate inventory indicates that recovery is imminent
- Of the 147 metropolitan regions studied, 110 saw home prices rising
Median prices of single family homes increase
Also in Q2 of 2012, there’s been a substantial rise in the median price of single-family homes—which currently stands at $181,500, as opposed to a median of $169,100 in the second quarter of 2011. This upswing of 7.3 percent is second only to the median price increase of the first quarter in 2006, which was 9.4 percent.
The NAR predicts a continued rise in single-family home prices in the coming months, fueled by rising median prices across metropolitan statistical areas.
2012 home sales surpass 2011 figures
The number of investors buying foreclosed or distressed homes and using them to generate rental income has also increased. During the second quarter of 2012, these foreclosed properties accounted for 26 percent of real estate sales. The total home sales for Q2 2012 stand at $4.54 million—which is 8.6 percent higher than the $4.18 million generated during the same period in 2011.
In addition, there’s a steady decline in the number of homes for sale, resulting in part from a record low number of new homes being built. This fact hints at a recovering market with increasing sales as demand catches up with supply. At the close of 2011’s second quarter, real estate market inventory stood at 3.16 million, while Q2 of 2012 closed with an inventory drop of 24.4 percent, to 2.39 million.
A substantial rise in the national median family income
On average, Americans are earning more. In order to buy a home at the current median price, the minimum annual income is $39,900 (with a down payment of 5 percent). This is good news for most families in the United States, who can easily afford homes with a median income of $61,000 reported in the second quarter of 2012.
For homes sold in Q2 2012:
- 34 percent of home buyers were first-time buyers
- 29 percent of homes were purchased in full, with cash
- 19 percent of all homes sold were bulk transactions
The Midwest shows rapid recovery
The NAR report for Q2 2012 reveals that the Midwest United States is in strong shape. While sales in the Northeast fell by 0.6 percent, and the median price of single-family homes dropped 1.6 percent from Q2 2011, the real estate sector in the Midwest recorded gains.
Home sales in this region increased 1.3 percent in the second quarter of 2012 from the same period last year. Median prices show even better improvement, with a 7.5 percent increase from Q2 2011, up to $149,400.
The bottom line for investors
These numbers clearly demonstrate that real estate recovery is underway—particularly in the Midwest. Investors can take this opportunity to invest in turnkey properties that will return high yields for years.
For expert guidance through the changing real estate market, contact NexGen Invest today.