U.S. home prices should continue to rebound from their 2007-11 collapse — but only at about half the pace of last year’s double-digit percentage gains, experts say.
"Prices should continue to go up because we’re still in housing-shortage conditions," says Lawrence Yun, the National Association of Realtors’ chief economist.
Home values enjoyed their biggest increases in years during 2013 as low mortgage rates, strong investor demand, a shortage of available properties and a sense that the housing bust has finally ended teamed up to push prices upward.
The NAR estimates that existing-construction homes fetched a median $197,300, up 11.6% from 2012 levels. That’s the biggest annual gain since 2005.
Yun predicts prices will rise another 5.3% this year, thanks in part to continued short supplies of available properties.
He says the number of homes listed for sale during 2013 came in near a 13-year low due to a long-running construction bust and many homeowners who couldn’t sell places for enough to cover their unpaid mortgage balances. Such "underwater" property owners can’t easily sell their homes unless they’re willing to kick in cash from their own pockets to make up the difference.
In addition to short supplies, Yun expects rising mortgage rates amid the demise of the Federal Reserve’s quantitative-easing program to partly constrain further price gains by making home loans more expensive.
But at the same time, the economist predicts an improving job market will push housing prices somewhat higher as more consumers feel confident enough about their finances to buy homes. "Higher mortgage rates will act as a negative and job creation will act as a positive, so those two factors should basically cancel each other out," Yun says.
The expert adds that the 5.3% median price increase he’s forecasting for this year would exceed the market’s long-term average of around a 4% annual gain.
Homeowners appear likely to benefit from the rising home values even if they don’t sell their properties this year.
Market tracker Zillow predicts that its Home Value Index, which tries to measure changes in all U.S. house and condo values (even those not for sale) will increase 3% this year, to around $174,000.
That would make this just the third year since 2006 in which median values have gone up, although the expected gains total only about half of the roughly 5% increase seen in 2013.
Zillow economist Svenja Gudell attributes the projected smaller gains to reduced housing demand amid higher mortgage rates, as well as to a growing supply of available properties as more and more homeowners find themselves "above water."
She adds that rising property values should reduce the ranks of investors who swarmed into inland California, the Southwest and other once-depressed markets last year as buyers apparently decided prices there had bottomed out. Everyone from small investors and huge hedge funds snapped up tons of properties in such markets, often crowding out "regular" house hunters by making generous all-cash offers.
But Gudell thinks those days are drawing to a close — good news for consumers looking to buy homes for personal use.
"Investors are starting to hold onto their [purchases] but not buy new investments," she says. "That should mean less competition for people actually in the marketplace looking for houses to live in."
This article was republished with permission from TheStreet.