Home Prices Projected to Rise at 3.3% Rate Over 5 Years

Home Prices Projected to Rise at 3.3% Rate Over 5 YearsHome prices have recovered pretty well through 2012, but one projection by a widely-cited measure is calling for five years of steady growth: an annualized rate of 3.3 percent from the third quarter of 2012 to the third quarter of 2017.
Fiserv Case-Shiller has released an analysis of home price trends in more than 380 U.S. markets based on its indexes and data from the Federal Housing Finance Agency (FHFA), the regulator over Fannie Mae and Freddie Mac.
Fiserv Case-Shiller projects home prices to increase 0.6 percent over the 12-month period from the third quarter of 2012 to the comparable period of 2013.
But that’s only a prelude to a good five-year run that should put the housing market closer to normal footing, barring unforeseen economic obstacles.
By the end of 2013, home prices will be rising in nearly every metro area in the U.S, Fiserv Case-Shiller projects.
“Some markets may experience short-term double-digit price jumps that could be partially reversed by price declines as large tranches of bank-owned inventory (REO) are liquidated,” Fiserv states in a statement.
In other markets, price appreciation will slowly return to normal rates as home buyers regain confidence.
Both home prices and home sales rose steadily throughout the last year, making 2012 the first positive year for both of these metrics since the housing market crash, if gains spurred by the home buyer tax credits in 2009 and 2010 are excluded.
“2012 was the first year since 1997 that the housing market has resembled something recognizable as normal,” said David Stiff, chief economist at Fiserv. “For the past 15 years, home price changes and sales volumes have either been boosted by a bubble mentality or crushed by crash psychology.”
Stiff explains that housing prices grew 3 percent in 1997, just below the 5 percent long-term average rate of appreciation. From 1998 to 2006, prices appreciated at levels above 5 percent, with double-digit price increases in many of those years.
Then, the market collapsed as “euphoria turned to panic.”
“It took until the end of 2011 before housing markets finally started to stabilize,” Stiff said. “The latest Case-Shiller results show a return to a historically normal pace of price appreciation in the last year.”
The recovery in home prices has been broad-based.
By the end of the third quarter of 2012, prices were rising in about 62 percent of all U.S. metro areas, compared to 12.5 percent in the same period a year ago.
Average U.S. home prices increased 3.6 percent from the third quarter of 2011 to the comparable period of 2012. Many of the metro areas that saw the deepest declines during the housing market crash enjoyed the highest price increases in that period.

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