Home Prices to Continue Rise in 2013 as Inventory Remains Tight

By Gino Blefari
President & CEO
Intero Real Estate Services, Inc.

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Now that many of us agree that 2012 was the bottom for most markets, things are already heating up. This week, we received news on home prices and a few predictions about where things are going this year.

CoreLogic released its latest Home Price Index this week, showing home prices increased 7.4% in November 2012 (on a year-over-year basis), the largest increase and highest level since 2006 when the market began to slide.

The rise in prices is due to steady demand from buyers, fewer bank-owned (REO) sales and a restricted inventory of homes for sale. Lack of inventory is expected to be the major market driver in 2013. Many owners in 2012 struggled with loan balances greater than the value of their homes, which made it impossible for them to sell and move up as they traditionally would do. While inventory will still be an obstacle in 2013, the rise in values will help more owners out of the underwater situation.

The best part of this news is that the increases are not completely contained within a few states. In fact, the index shows that all but six states are experiencing year-over-year price gains. The five states with the highest home price appreciation (including distressed sales) were Arizona (20.9%), Nevada (14.2%), Idaho (13.8%), North Dakota (11.3%), and California (11.1%).

In terms of price depreciation, the five states with the lowest home price depreciation were Delaware (-4.9%), Illinois (-2.2%), Connecticut (-0.5%), New Jersey (-0.5%) and Rhode Island (-0.3%). And excluding distressed sales, only two states experienced home price depreciation in November: Delaware (-3.5%) and Alabama (-2.2%).

Also, of the top 100 statistical areas measured by population, only 13 show year-over-year declines in November, which is seven fewer than seen in October, CoreLogic reported. That’s a marked improvement for sure.

The research firm expects bank-owned sales to decline this year, which it says will also help with overall home values as these properties tend to sell at a discount compared to comparable homes.

All the pieces are in place for housing to break out of “recovery” mode this year and move into growth. The inventory hurdle may turn out to be a good thing if it can help to push up prices a bit more this year. Then maybe in 2014, we’ll see even more homeowners pull out of their underwater loans.