The CoreLogic Case-Shiller Indexes estimate that home prices increased by 7.3 percent in 2012, the strongest rate of appreciation in nearly seven years. The analysis also projected that the trend of rising home prices will continue in 2013 and beyond. In the five-year period from the fourth quarter of 2012 to the fourth quarter of 2017, home prices are expected to rise at an annualized rate of 3.9 percent.
“Home prices were up in seven out of every 10 metro areas in 2012. By comparison, in 2011 prices appreciated in fewer than one-in-five markets,” said David Stiff, chief economist for CoreLogic Case-Shiller. “We expect strong buying activity this spring will lead to stabilization of home prices in most lagging markets, resulting in rising home prices in nearly every metro area by the end of 2013.”
The largest year-over-year price gains were recorded in many of the metro areas that were at the epicenter of the housing bubble/crash, including Phoenix (24 percent), Miami (14 percent) and Las Vegas (13 percent). In addition, price declines moderated in metro areas with lagging recoveries, such as Long Island, N.Y. (-4 percent), Virginia Beach, Va., (-2 percent) and Philadelphia (-1 percent).
While the data point to continuing price appreciation, the overall national rate of home price increases in 2013 is projected to decelerate from 2012 levels. The CoreLogic Case-Shiller Indexes project a 2.5 percent home price increase in 2013, as the market dynamic shifts again in bubble/crash metro areas. While homes in these markets are still significantly undervalued, the strong investor demand for foreclosed properties, record levels of housing affordability and other demand factors that have driven recent double-digit price gains are unlikely to persist throughout the year. In addition, as prices rebound, more existing homes will be listed for sale, particularly those of homeowners who had negative equity prior to the recent price jump. Price appreciation will also be limited by the increase in supply as more new homes are built.
Stiff tamped down concerns of another housing bubble.
“Even if double-digit price appreciation were to continue in the former bubble metro areas, there is no reason to believe that new home price bubbles are forming,” he said. “That’s because single-family homes in these markets are still very affordable, even after last year’s large price gains. Consider Phoenix, where home prices rose 27 percent since the market hit bottom in 2011, making it the strongest residential real estate market in the U.S. Yet, home prices there are still 45 percent below their 2006 peak.”
Stiff observed that demand in Phoenix is being driven primarily by investors. As prices rise, the profitability of investment properties will erode, dragging down investor demand.
“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 is 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. 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.”