Home prices significantly increased in June, but a constricted inventory continued to hold buyers back from making more transactions.
The total existing-home supply, including single-family properties, condominiums, townhouses and co-ops, declined 3.2 percent to an estimated 2.39 million units, according to a report from the National Association of Realtors. At the current sales pace, this makes up just a 6.6-month supply.
As a result of fewer options, existing-home sales fell 5.4 percent in June to an annualized rate of just 4.37 million units, the report said. However, regardless of the decline, the rate was well above where it was a year earlier.
"Despite the frictions related to obtaining mortgages, buyer interest remains solid," said NAR chief economist Lawrence Yun. "But inventory continues to shrink and that is limiting buying opportunities. This, in turn, is pushing up home prices in many markets."
Median existing-home prices surged 7.9 percent last month from a year earlier to $189,500, marking the fourth consecutive month of year-over-year gains. In addition, this was also the most significant annual home price increase seen since the beginning of 2006.
Foreclosures, short sales still popular options
Meanwhile, the gain in existing-home prices occurred despite a number of buyers opting to purchase distressed properties, including foreclosures and short sales. Last month, these homes accounted for roughly 25 percent of all transactions and sold for an average 16.5 percent discount. While foreclosures and short sales made up a significant portion of overall activity, property data indicates the share was down from 30 percent in June 2011.
Additionally, all-cash sales also accounted for a notable amount of activity last month, at 29 percent of the total load, the report said. It's believed investors purchasing distressed homes in bulk caused the rate to increase slightly from May, when just 28 percent of transactions were all-cash sales. In turn, many investors convert these properties into affordable rental units or resell them for a profit. This strategy has helped reduce the vacancy rate in a number of struggling housing markets across the country.
Investors have contributed to the real estate recovery during recent years. While purchasing foreclosures is one way they are assisting, last week the Federal Housing Administration announced the extension of a bulk defaulted mortgage sales program. Under the initiative, investors have the opportunity to purchase the loans of distressed borrowers at a steep discount and bring them out of default.