(TheNicheReport) -- Reports from the United States Commerce Department and the National Association of Realtors (NAR) show positive gains for the American housing market in August 2012, the best since May 2010. The NAR report indicates a 7.8 percent increase in existing home sales from July to August. The announcement is particularly hopeful when considering that in 2010 the First-Time Home Buyer Tax Credit program was stimulating most sales.
The Commerce Department released figures that show an uptick in activity by U.S. home builders. New construction projects broke ground at a rate that was 2.3 percent higher in August compared to July. This means that 750,000 new single-family residences have been built since August 2011. Builder confidence is also on the rise, thanks to new orders for multifamily buildings.
The reports from the NAR and the Commerce Department arrive in the wake of the Federal Reserve's announcement of its commitment to stimulate the economy by stepping up its purchase of mortgage-backed securities and keeping mortgage interest rates low through 2015. The optimism by real estate market analysts is palpable, as many believe that affordability will prevail even with improving home prices.
Real estate investors are still very interested in purchasing rental properties and chasing after rock-bottom deals provided by distressed properties, but these investors may have to step up their bids once the optimism catches up to American consumers. Rising home prices tend to stimulate spending and reduce unemployment.
First-Time Home Buyers Still Shy
The basis of a healthy housing market is made up of first-time home buyers, who at this time make up only 31 percent of purchase transactions. Real estate investors and speculators dominate the market, which needs at least 40 percent of first-time home buyers in order to prosper. First-time home sales have slipped three points from 34 percent since last month.
The NAR maintains that current home supplies are not adequate to improve market conditions. House hunters know that they are being courted and feel entitled to be picky when it comes to buying their dream home. Many home shoppers would rather wait for a brand new house, and some investors are waiting for a new wave of foreclosures to hit the market.
A Slight Drop in Prices
Median home prices are now at $187,400, slightly lower than in July but almost ten percent higher than a year ago and the highest since 2006. Monthly price gains were observed for most of 2012, and this slight dip could be a sign of a return to normalcy instead of meteoric rises and precipitous drops. Confidence with regard to improvement in prices and demands is high, but some analysts warn against a cool down in the weeks leading up to the 2012 Election Day.