The typical amount of time it takes to sell a home in the United States is shrinking and for traditional sellers is now in the range of historic norms for a balanced market, according to the National Association of Realtors.
As a result it expects home prices to increase between 4.5 and 5% this year and about 5% next year.
NAR’s latest data shows that the median time a home was listed for sale on the market was 69 days in July, down 29.6% from 98 days in July 2011. The median reflects a wide spectrum; one third of homes purchased in July were on the market for less than a month, while one in five was on the market for at least six months.
There is a clear relationship between inventory supply and time on market, according to NAR chief economist Lawrence Yun.
‘As inventory has tightened homes have been selling more quickly. A notable shortening of time on market began this spring, and this has created a general balance between home buyers and sellers in much of the country,’ he explained.
‘This equilibrium is supporting sustained price growth, and homes that are correctly priced tend to sell quickly, while those that aren’t often languish on the market,’ he added.
At the end July there was a 6.4 month supply of homes on the market at the current sales pace, which is 31.2% below a year ago when there was a 9.3 month supply.
The figures are good news for the residential real estate market as in such balanced market conditions, home prices generally rise 1 to 2% above the overall rate of inflation as measured by the Consumer Price Index.
‘Our current forecast is for the median existing home price to rise 4.5 to 5% percent this year and about 5% in 2013, which is somewhat stronger than historic norms because of the inventory shortfall that is most pronounced in the low price ranges,’ Yun said. CPI growth is projected at 2.1% for 2012 and 2.3% next year.
From 1987 through 2011, analysis of the NAR Profile of Home Buyers and Sellers series showed the typical time on market was 6.9 weeks, while the existing home sales series showed an average supply of seven months, just above the high end for a balanced market.
The new measure of days on market shows a longer selling time than the historic findings which measured traditional sellers of non-distressed homes. The new series include short sales that typically took three months or longer to sell.
‘Factoring out short sales, the median time on market for traditional sellers appears to be in the balanced range of six to seven weeks,’ Yun explained.
During the peak of the housing boom in 2004 and 2005 when inventory supplies were historically low, averaging 4.3 months over the two year peak period, the median selling time was four weeks. Prices in that time frame were bid up and rose at an annual rate of 10.3%, historically higher than the 3.1% average growth in CPI during the period.
In the economic downturn, time on market for non distressed sellers peaked at 10 weeks in 2009 with a 10 month annualized supply. The median price fell 12.9% that year, which was the biggest annual decline on record.
‘Ironically, if housing construction doesn’t pick up to normal levels within two years, supply shortages could be sustained for an extended period and lead to above average appreciation,’ said Yun. ‘Therefore, any unnecessary hindrance to housing starts, such as excessive local zoning regulations or stringent bank capital rules for construction loans, should be carefully re-examined,’ he added.