By Alessandra Malito
Despite a small decline in home prices last quarter, values are expected to continue increasing.
In the fourth quarter of 2013, the S&P/Case-Shiller Home Prices Indices reported the National Index declined .03 percent, but grew overall last year by 11.2 percent. This shows the trend that home prices will continue to grow, but much more gradually. There is no definitive reason, but some economists suggest it could be due to the tough winter.
“It’s difficult to say if it’s because of weather or fear of higher interest rates,” David Sloan of 4Cast in New York said. “The strong growth was some parts of the country rebounding from exceptionally weak levels.”
The housing market hasn’t always been the most reliable – and in recent years is only beginning to recover from a housing bubble that nearly diminished the market and put the country into a situation worse than the Great Depression. Easy access to credit and not enough returning on loans left banks, and homeowners, in a tough spot. Suddenly, lenders started to retreat and that left homes and their prices down in a slump. Only now are they on the rise, and will continue to do so, if only slowly.
“It’s going to be difficult to sustain strong growth rates,” Sloan said. “Some loss of momentum will be seen in the growth rates.”
The six cities with the largest increases were Las Vegas, San Francisco, Los Angeles, Atlanta, San Diego and Detroit.
Another decline in housing came from building permits and housing starts, both of which were below in their monthly seasonally adjusted rates. These declines affect other parts of the housing industry as well — like housing starts and rentals.
“Because we haven’t been having the level that is fundamentally needed,” NAR spokesman Walter Molony said, “we have housing shortages, rental marketplace and in the purchase market price.”
The reason for the decline – and the potential for growth – comes down to the younger generation.
“A young person leaving their parents house, typically renting an apartment, sometimes buying a house,” Molony said, “That creates a demand for construction activity.”
A demand for construction activity means a rise in prices, taking homeowners out of the buyer’s market and into their own.
And rising prices does bring quite a few perks.
“We got a strong recovery in prices over the last two years,” Molony said. “The up side to that has been the building up of equity, people recovering lost equity, some owners who are upside down and become positive in the net worth of their home.”
Another hurdle facing the industry is that while mortgage default rates gone back to pre-recession levels, banks are still standing firm on their lending standards. This will play a role in how quickly, or slowly, home prices will grow.