By: Victor Normand
Published: June 2013
As we have said recently, the housing market has changed from a buyer’s market to more of a seller’s market, with the resulting increase in home sale prices. Anecdotal evidence all portray a hot market on the verge of going bubble: multiple offers, bidding wars, buyers camping out. And in fact in some markets, mostly on the west coast and down south, home sale prices have seen double-digit, year over year increases. But the housing market as a whole seems far from being in danger.
Prices everywhere are rising for some very predictable reasons. The National Association of Realtors reports a 31% increase in buyer traffic over the last year. Additionally, inventory and interest rates remain low, and in general, the economy is steadily improving as is consumer confidence. But home prices still have a ways to go before getting back to their pre-recession peaks. None of the twenty markets tracked by the Standard & Poor’s Case-Shiller home price index has returned to these peak levels. The Boston market declined by more than 15% and has regained about 8% of that loss in value.
The towns in our market that we track have similarly done well in gaining on the highest prices paid before the recession, particularly over the past year, but there’s still room to grow. The chart below shows peak average sale prices for single family homes from 2004 through 2006 and compares them to recent sale prices.
The averages are for the same style home throughout the analysis.
So, what is likely to keep prices from increasing into dangerous, unsustainable levels? According to Jed Kolko, chief economist for Trulia, three factors are at work to produce a stable market:
- Inventory should expand in response to demand
- Mortgage interest rates should rise as the economy strengthens, and
- Investor interest in undervalued properties should fade
A stable housing market is in everybody’s interest. Both buyers and sellers are best served when housing decisions are made for personal reasons and not out of “irrational exuberance” as former Federal Reserve Board Chairman, Alan Greenspan once said. And the Resident Experts(SM)are available to help you deal with all your rational exuberance.