The housing recovery has pushed up home prices nearly everywhere. Over the past year, home prices rose in 225 of the 276 cities tracked by Clear Capital, a provider of real estate data and analysis. (See how home prices are shifting in 276 metro areas.) Prices nationwide rose by 10.9%, pushing the median price for existing homes up by $30,000, to $215,000. For people who have waited to sell their home or refinance their mortgage, that's good news.
In the past year, sales of existing homes and condos rose by 11%, to 5.29 million-almost the highest level in four years. The National Association of Realtors expects sales to remain about the same in 2014. Sales nationally have increased across all regions and in all but one price category, signaling a broad-based recovery.
Although sales of entry-level homes (priced at $100,000 or less) have fallen by almost half over the past year in the West, they're still rising in the Northeast, where the job recovery has lagged behind other regions. Sales of homes priced between $750,000 and $1 million have risen the most. "A consistent stock market recovery for a prolonged period has opened up the wallets of upper-income homeowners," says Lawrence Yun, chief economist for the National Association of REALTORS®.
Nationally, the supply of homes for sale stands at five months' worth. (Months' supply is a measurement of how long it would take to sell everything at the current pace of sales. A market balanced between buyers and sellers has about six months' supply of homes.) The current level slightly favors sellers, but in many cities inventory is much tighter. For example, the Washington, D.C., suburbs of Montgomery County, Md., and Northern Virginia had about two months' supply in September. Yun says the housing market has moved toward a shortage that will persist through 2014.
Most people who list their homes for sale expect to buy another one, so it's a wash in terms of net inventory. According to the National Association of Home Builders, whose members retrenched during the bust, just less than half as many homes were started in 2013 as in a normal market. NAHB forecasts that a normal pace of housing starts won't resume until late 2015. Tight credit, land and labor, as well as rising costs for materials, are constraining builders.
Distressed properties are still adding to the supply of homes nationally, but foreclosure filings are falling. Fewer homeowners are losing their homes as the economy improves, home prices (and home equity) rise, and lenders agree to more short sales (homes sold for less than their owners owe on their mortgages). "We're in the homestretch of getting through the foreclosure crisis," says Daren Blomquist, vice-president at RealtyTrac, which monitors the foreclosure market. "But we won't cross the finish line, with filings back to pre-crisis level, until early 2015.”
Market observers agree that home prices will rise in 2014, but at a slower, more steady pace compared with historical trends. Clear Capital forecasts that home prices nationally will rise by 3% to 5% in 2014, about the historical average. Kiplinger expects an increase of 4%. "The most notable thing about 2014 will be how un-notable 2014 is," says Villacorta.
Meanwhile, the Conference Board, a nonprofit association of businesses, found that the percentage of consumers who intend to buy a home in the next six months was the highest since 2000. Adding to the push: Pent-up demand among young people who, hampered by lack of jobs or insufficient income, have been living in their parents' basements or sharing apartments with roommates. Celia Chen, a housing analyst with Moody's Analytics, says Moody's expects the economy to expand enough in the coming year to enable young people to begin moving out. They'll probably rent first, but low vacancy rates and higher rents will prompt some renters to move on to homeownership. As home prices continue to rise, more owners who had been underwater-meaning that they owed more on their mortgage than their home was worth-will emerge from the sidelines and start selling and buying homes. CoreLogic reports that almost 3.5 million homeowners were lifted out of negative equity between the end of 2012 and mid 2013. Nevada, Florida, Arizona, Michigan and Georgia have the highest shares of underwater homeowners.
In some cities, institutional investors have been scooping up properties to rent out. Plus, builders cut way back on new-home construction during the bust, and homeowners who bought at the top of the market are still reluctant to sell until they can recoup more of their investment. Some are still underwater, unable to pay off their mortgage with what they'd get for their home.