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Real Estate Market Commentary - July 2014
by Peter L. Zachary, MAI, MRICS

On July 1, 2014, www.businessweek.com had an article by Peter Coy entitled "The Re-Explosion of U.S. House Prices Is Over". It states:

"Call off the bubble alert. Through 2012 and 2013, U.S. house prices were rising at a pace that was as extreme as anything seen during the disastrous housing bubble of the last decade. But since the start of 2014, the pace of increase has slowed markedly. Assuming the slower pace sticks—and it looks as if it will—prices will remain affordable, if not exactly cheap. "That means that the housing market will avoid becoming overvalued, allowing the recovery in sales activity and housing starts to continue," Capital Economics property analyst Paul Diggle said in a research note today.

The latest evidence of slowing comes from CoreLogic (CLGX), which announced today that prices in May were up 8.8 percent from a year earlier. That's still a big gain, but CoreLogic Chief Economist Mark Fleming notes in a report that it's almost 3 percentage points lower than the growth rate seen three months earlier, and it's the lowest annual change in 18 months.

Look for the rate of increase to continue declining in the months ahead, as more housing inventory comes onto the market. "We are still under-building compared to population growth," homebuilding analyst Stephen Kim of Barclays wrote in a recent report. From a low of 554,000 in 2009, annual housing starts reached 927,000 last year, and Barclays predicts they will rise by 200,000 annually, reaching 1.7 million by 2017.

The housing market is fundamentally sounder than it has been in years. The number of homes entering foreclosure per quarter is back down to the pre-crisis levels of 2005-2006, notes Torsten Slok, chief international economist of Deutsche Bank Securities. Distressed home sales accounted for only 11 percent of sales in May, down from 18 percent a year earlier.

The strengthening economy helps, too. History shows that the housing is more sensitive to the health of the job market than to interest rates–meaning that if people are confident about their jobs they will buy, even if mortgage rates are up.

Bottom line: Capital Economics looks for home prices to rise 7 percent this year and 4 percent in 2015. CoreLogic predicts prices will rise 6 percent from May 2014 through May 2015. Barclays predicts home prices will rise 5 percent this year, 3 percent in 2015, and 2 percent in 2016."

More to come next month. Read previous Real Estate & Housing Market News.


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