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Real Estate on the Rebound

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After more than four years of weak prices and slow sales, residential real estate is picking up steam. Not only have year-over-year sales increased for 21 consecutive months, but demand is up all over the country, says Walter Molony, spokesperson for the National Association of Realtors (NAR).

This is good news for homeowners—and for the economy at large, given that housing represents nearly 5 percent of the nation's economy and accounts for 2.9 million jobs.

Market on the rise

The housing market recovery began in early 2012, Molony notes, and continues to improve. According to the NAR, the national median home price reached $178,900 in the fourth quarter of 2012, a 10 percent jump from the previous year and the strongest year-over-year increase since 2005.

Regionally, the South, Midwest and Northwest have very tight supplies of housing, meaning the number of houses on the market is equal to or below the level of consumer demand. This can create a favorable market for sellers because more buyers are competing for fewer homes. Inventory in the West is even tighter, which could have slowed growth in January, according to NAR's Pending Home Sales Index. Supply and demand are more evenly matched in the Northeast.

These market conditions are positive for buyers and sellers, Molony says. Because homeowners stay in one place for an average of nine years, the typical seller is seeing "a very healthy net return based on the tenure they've had in their home."

What's behind the turnaround?

A number of factors have helped boost the residential real estate market, including:

  • Job growth: More people in the workforce means more buyers in the market, which helps drive up prices and clear out inventory. Job growth has helped "unleash a pent-up demand" in the market, says Lawrence Yun, NAR's chief economist.
  • Affordability: Home prices are rising but are still at a level many families can afford, Molony says.
  • Interest rates: Mortgage rates have been low, but they're likely to rise as the economy improves—which can spur potential buyers to lock in a more favorable rate now.

The outlook for 2013

If the housing supply remains low, Yun expects home price growth to exceed 7 percent this year. "We're not at the point yet where there's a risk of prices rising so high that they're not affordable," Molony says. "Long-term prices have historically risen at inflation plus 1 to 2 percent, and that seems to be where we're headed."

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