Home prices predicted to rise through 2017

rising housing costsHouse prices increased 7.3 percent in 2012, the strongest rate of appreciation in nearly seven years, and are projected to continue to rise, albeit at a slower annualized rate of 3.9 percent through 2017.

That’s according to a new analysis of home price trends in more than 380 U.S. markets by CoreLogic, a residential property analytics company. The analysis is based on the CoreLogic Case-Shiller Indexes, owned and generated by CoreLogic and supplemented with data from the Federal Housing Finance Agency

Hardest-hit markets post biggest gains

Home prices rose in seven of every 10 metro areas in 2012 compared with 2013, and the largest gains were recorded in many of the metro areas hardest hit by the housing crash, CoreLogic said. These markets included Phoenix, where prices were up 24 percent, Miami, where prices rose 14 percent, and Las Vegas, where prices increased 13 percent.

That trend is also expected to continue in 2013, yet again at a slower pace, David Stiff , chief economist for CoreLogic Case-Shiller, said in a statement.

“Phoenix and other strongly rebounding markets will likely be buffeted by some volatility in home prices going forward,” Stiff said. “As all-cash purchases and investor demand wane, it’s not clear if demand from first-time and trade-up buyers will immediately fill the void, as mortgage lending standards are still very strict and many consumers remain risk-averse.

Be wary of predictions

Still, home price appreciation is never guaranteed, regardless of rosy predictions.

“If non-investor demand ramps up too slowly, then recent double-digit price appreciation could decelerate suddenly or even turn negative for a few months,” Stiff said.

Millennials might move less often

Homeownership and housing markets naturally are expected to change over time, according to several academics who spoke at a recent National Association of Realtors conference in Washington, D.C.

Lisa Sturtevant of the Center for Regional Analysis at George Mason University said baby boomers and millennials are delaying major lifecycle events such as getting married, having children and retiring from the workforce. As a result, they tend to move less frequently than people of previous generations did.

“Homeownership rates have declined fastest for millennials, most likely the result of fewer job opportunities and higher student debt; however, I believe they still want to become owners and will eventually make their way into the housing market,” Sturtevant said.

James D. Shilling of the Institute for Housing Studies at DePaul University said higher home prices would “incentivize” a large number of households that have little or no equity to buy another home. However, he added that home purchases and household mobility are still likely to decline due to future increases in interest rates. When mortgage rates start to rise, homeowners won’t want to give up their low-rate loans to buy a new home with a higher-rate mortgage, Shilling said.

Lending guidelines too tight?

Lucy Gorham of the Center for Community Capital at the University of North Carolina said restrictive lending guidelines not only reduced loan defaults, but also blocked a higher percentage of creditworthy borrowers.

Margaret McFarland of the Colvin Institute of Real Estate Development at the University of Maryland agreed.

“Federal Housing Administration loans are an important financing option for affordable homeownership, (and) Veterans Affairs home loans also perform very well in relation to other mortgage products, even with a zero down payment,” she said.

HSH Associates Financial News Blog

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