Housing Re-Bubble: Are Home Prices Moving Too Fast?

Housing Re-Bubble: Are Home Prices Moving Too Fast?Analysts say home prices will likely slow their growth in 2013, and that may be a good thing for the housing recovery.
Many factors are affecting demand for single-family homes and condos, including limited inventories, still low levels of new construction and historically low mortgage rates.
But many of the buyers are investors scooping up discounted “distressed properties,” many of them short sales or pre-foreclosure sales. Distressed homes accounted for 22 percent of November sales (12 percent were foreclosures and 10 percent were short sales), down from 24 percent in October and 29 percent in November 2011.
Investors with deep pockets are leaping into the housing market, including private-equity giants and hedge funds. These investors are spending cash at bank auctions or going through short sales and bulk purchases from local investors in need of cash.
However, weak fundamentals remain in the market, such as a high number of “underwater” homeowners (possibly a quarter of all mortgage holders) and strict credit standards by lenders trying to balance regulatory requirements and a high demand for refinancing.
Both of these subsets are being left out of an historically affordable market. As are Americans who are unemployed or underemployed with stagnate wages.
“Low prevailing mortgage rates, the limited supply of existing homes for sale (either due to the few foreclosure completions or the number of underwater borrowers who cannot sell), and the anemic levels of new home construction are facilitating affordability and feeding demand,” noted analysts at Fitch Ratings, according to CNBC. “These factors are offsetting weak fundamentals that would otherwise hinder home price growth, such as high structural unemployment and lackluster wage growth.”
But in many regions where the foreclosure crisis has hit hard since 2007 have seen home price gains.
Overall, home prices are now rising at their fastest pace since 2005.
A panel of more than 100 housing analysts expect home prices to rise 3.1 percent in 2013 after finishing 2012 up nearly 5 percent, according to the December 2012 Zillow Home Price Expectations Survey.
That’s up from an expectation of 2.4 percent in September.
For 2013, price change projections range from 4.9 percent among the most optimistic segment to 0.8 percent among the most pessimistic, on average.
But Fitch reasons that home prices are overvalued, and that price growth and technical factors could collide and shift the prevailing trend.
As more foreclosure homes move through the judicial process, supply could expand significantly in some regions. In so-called judicial states, foreclosures have seen long delays over the past few years, in part because of investigations and lawsuits charging shoddy paperwork and improper evictions.
Nonetheless, many analysts see a continuing solid housing recovery now that the fiscal-cliff legislation has been enacted. The market fared well in the numerous tax-saving extensions that apply to real estate holdings and mortgage restructuring.
One of the biggest fiscal-cliff victories was a one year extension of the Mortgage Debt Relief Act of 2007. It spares additional taxes on forgiven mortgage debt that is typical in loan modifications and “short sales” to prevent foreclosures.
“An organic recovery in the housing market really took hold in the latter half of 2012, and this improvement is echoed in some of the most optimistic price projections we’ve seen in years from this group,” said Zillow Chief Economist Dr. Stan Humphries about the rosy outlook of panelists. “Record levels of affordability and an improving overall economic picture have really helped buoy the market and have us well positioned for continued growth, albeit slightly slower, in 2013 and beyond.”

One thought on “Housing Re-Bubble: Are Home Prices Moving Too Fast?

  • January 5, 2013 at 7:17 am

    Organic Recovery? Ha! There’s so much poison in this recovery the American 99% will be killed off again. Prices are artificially inflated because the huge shadow inventory of homes being held by banks and investment groups is being withheld to limit supply and prices are going up. HUD bulk sales are screwing the small investors as they can’t a chance to buy a he or investment house at 40 cents on the dollar like the big banks. The big banks will properly manage and hold the shadow inventory until a profit point is reached in 4-5 years and then starting loaning money they refuse to loan today because they can’t profit anything at current interest rates. So the 99% will once again be buying highly overpriced homes. The banks ill gotten gains from the first meltdown are being used to create this new bubble. When will regulators wake up and stop the madness? Never! As the regulators are part of and profit from the while scheme.

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