Page 13 - January_Sites

HOUSING OUTLOOK 2015
by Pat Mertz Esswein, KIPLINGERS PERSONAL FINANCE, January 2015
Like a long-distance runner trying to find his stride, the housing market is slowing its pace as it gains back the equity lost
in the meltdown of 2006 to 2007.
Over the past year, home prices
rose in 246 of the 277 cities tracked by Clear Capital, a provider of real estate data and analysis. But in two-thirds of the cities with price increases, the gains were lower than they were the year before. The slowdown reflects a softer market as investors throttled back and first-time buyers encountered credit headwinds.
Prices in most cities are heading higher, but the eye-popping gains have mostly disappeared.
In the years leading up to 2014, some of the regions and cities hit hardest by the housing bust experienced huge gains—essentially an overcorrection to the correction. In 2014, among cities that experienced double-digit price growth, Detroit topped the list with a gain of 20.9%, followed by most of California (including San Jose and
San Francisco, the nation’s most expensive housing markets), Atlanta, Miami and Las Vegas. Yet prices in many cities are still significantly lower than they were at the market’s peak in mid 2006. And across the U.S., home prices are still 23% lower, on average, than they were in 2006. During the correction, home prices fell so far that most metro areas were undervalued compared with what they would have been if they had just plugged along without a boom
or bust.
That doesn’t necessarily mean that
they are undervalued now, says
Andres Carbacho-Burgos, a senior economist with Moody’s Analytics who covers housing. Most metro areas are about where they should be, he says. Kiplinger forecasts that home prices nationally will rise by 3.5% in 2015, at the low end of the historical range of 3% to 5% annual appreciation (before inflation). We also expect existing-home sales to increase 8% in 2015 (after declining
2% in 2014) and new-home sales to rise 25% in 2015 (after a meager 4% rise in 2014).
FIRST-TIME BUYERS STEP UP
For the past few years, investors were lured by an abundance of bargains and high demand for rental properties. As prices rose beyond the point where investors could get their desired return, demand began to wane.
We expect existing- home sales to increase 8% in 2015 (after declining 2% in 2014) and new-home sales to rise 25% in 2015 (after a meager 4% rise in 2014)
Now the housing market has begun to transition from one phase of recovery to the next. Buyers who actually live
in their homes must pick up where investors left off for there to be real growth, says Alex Villacorta, chief data analyst for Clear Capital. Homeowners who trade up don’t provide that growth because they usually swap one home for another. That leaves first-time buyers—including the record number
13