US Home Price Increases Expected to Slow

US Home Price Increases Expected to Slow

Residential News » North America Residential News Edition | By Kevin Brass | June 7, 2013 11:50 AM ET

If there is one thing real estate analysts agree on, it's this: the U.S. home market can't maintain the current rate of price inflation.

Prices are up in double digits from a year ago in many markets, including increases of more than 20 percent in cities such as Las Vegas and Phoenix, which were particularly hard hit by the downturn.

"It's unsustainable if it stays at this rate," said Mark Fleming, chief economist for CoreLogic on the sidelines of the National Association of Real Estate Editors conference in Atlanta this week. "It's not fundamentally supported."

Existing home prices will increase 8 percent this year, but only 5 percent in 2014, National Association of Realtors economist Lawrence Yun told the conference.

Affordability will increasingly become an issue for buyers as prices rise, Mr. Yun believes.

"Price growth in double digits is clearly outpacing people's income growth," Mr. Yun said.

Nevertheless, home sales are expected to continue to steadily rise in the next two years, reaching 5.7 million closings in 2015, compared to 4.6 million in 2012, according to NAR data.

But analysts don't expect prices to drop. Prices are still undervalued versus long term income and rents and there are no signs of overbuilding, he says. And new inventory is still far below traditional levels

"We are not in bubble trouble," said Jed Kolko, chief economist for Trulia.

Even the economic landmines in the future will do little to slow sales, he believes. "You're not going to see [rising] mortgage rates kill housing demand," Mr. Kolko said.

But there is one uncontrollable variable that could throw off all the forecasts.

"If the economy goes south, all bets are off," Mr. Fleming said.

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