Home values will continue to rise next year, but the pace will slow to almost half of this year’s gains, according to a report released this morning by CoreLogic Case-Shiller.
The report projects that home prices will increase 5.6 percent from the first quarter of 2014 through the first quarter of 2015. In the first quarter of this year, home prices increased 10.2 percent.
Rising mortgage rates are one reason the pace of gains will be slower next year, says Greg McBride, a senior financial analyst with Bankrate.com.
“Rates will contribute to moderating prices, but at current levels, mortgage rates aren’t going to keep home prices from rising altogether,” he said. “They’re just not going to move us as quickly.” After spiking last month, mortgage rates have been at 4.37 percent for the past two weeks.
The Case-Shiller report found that home prices were up in more than three-quarters of metropolitan areas in the first quarter of 2013, compared to the same period last year. The 10.2 percent Increase in the quarter was the first double-digit gain since the peak of the housing bubble in 2006.
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“Record levels of affordability, a slowly improving job market, and very small inventories of new and existing homes for sale will continue to drive U.S. home price appreciation during the summer,” David Stiff, chief economist for CoreLogic Case-Shiller said in a statement. “Although a small number of metropolitan areas show year-over-year declines, it is likely that home prices in these cities will turn positive by the end of the year.”
Some of the strongest markets in the report were at the center of the housing bubble, including Phoenix, where prices increased 23 percent; Sacramento where prices grew 21 percent; and Miami where prices grew 14 percent.
In beleaguered Detroit, where homes are among the cheapest in America, prices went up 18 percent, and in booming Bismarck, N.D., prices saw a 13 percent hike.
Sellers continue to have the upper hand in many of markets, as tight inventory has demand outstripping supply. The supply constraint reflects hesitant sellers who may be waiting for prices to climb even higher, and a slower-than-expected increase in in homebuilder activity.
Homebuilder confidence, which leads to more building soared in July, and also stands to hamper price growth next year.
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One positive for homebuyers: the investors who have dominated sales in recent months have begun to exit, says Trulia Housing analyst Jed Kolko. “Because home prices are higher now than they were a year ago, investors are less eager to buy,” he adds.
While recent home price gains have stoked bubble fears, the CoreLogic report downplays such concerns, because prices remain far below bubble levels.
"Although double-digit gains usually indicate unsustainable appreciations and, possible, bubbles in some metro areas, there is less need for concern now since home prices remain 26 percent below their peak nationally and are even lower in many metro markets,” Stiff said.
Earlier this week, CoreLogic Case-Shiller released monthly price data, which showed that home prices grew 1 percent in May from April, and 12.1 percent year-over-year.
