Just when you thought it was safe to get back into the housing market, there are headlines warning you of a home price bubble. Most of this was due to the 12% annual gain in the National Association of Realtors Median Sales Price and S&P/Case-Shiller Home Price Index on 20 metro markets. In addition, there were a number of individual housing markets that recorded year-over-year home price appreciation in excess of 20%. However, not all markets experienced this level of gain. Nationally, home prices are still approximately 13% below their previous peak in 2007. Part of the reason behind the strong price gains in 2013 was the ample supply of investor purchasers, armed with cash, looking for distressed properties. These investors saw an opportunity to fix up the property and flip it for a profit or hold it for its rental potential.

More recently, the home price appreciation is being driven by improving economic conditions.  Potential homebuyers feel more confident due to the expanding job market. Further, mortgage interest rates remain low, helping to keep housing affordability high. In those markets that have experienced a rise in home prices, fewer homeowners find themselves in a negative equity position. Nearly 4 million residential property owners recovered their lost equity in 2013. Many of these are potentially move-up buyers, which would increase the supply of units available to first-time homebuyers.

What can we expect in 2014?

First, I see no cause for alarm when it comes to a national housing bubble. Second, there should be some improvement in the supply of units, in both existing homes and new construction. Third, the availability of financing is improving. Finally, home prices gains should be more moderate versus those recorded in 2013. According to the economic outlook forecasts from such groups as the National Association of Realtors, Mortgage Bankers, Moody’s Analytics, Fannie Mae and Freddie Mac, home prices gains between 4% and 6% are anticipated for 2014, which is more in line with the national long term average.

Have thoughts on the housing market trends in your local area? Please share in the comments section below.

Tags: ,