While the tight inventory of homes suggests to some that home-price appreciation may be picking up again, it won’t be long lived, and price gains will likely settle in at about 4%.

That’s the verdict from Capital Economics in their December monthly housing report.

“Tighter supply conditions suggest that the moderation in house price inflation may be about to go into reverse. So, too, do solid rates of economic growth and job creation as well as tentative signs that mortgage credit conditions are easing. That said, although we do not think that they will prove unduly problematic, interest rates are also poised to rise and investor activity has cooled markedly in recent months as housing has become less undervalued,” writes Ed Stansfield, chief property economist. “And neither expectations, nor asking price data show any signs that a new surge in house prices is imminent. Thus, on balance, we expect prices to rise by 4% next year.”

Click to enlarge

(Source: Capital Economics)

Capital Economics says the factors that went into its forecast that the Federal Reserve will be raising interest rates by the second quarter of 2015 haven’t changed, and that these rising rates won’t change the assessment that housing is still a touch undervalued and very affordable.

“Existing and new home sales edged up last month, but forward-looking indicators suggest this progress could stall in the next month or two,” Stansfield writes. “The dip in the supply of homes for sale should be short-lived as sellers look to capitalize on their stronger bargaining position and the economy improves. The pace of monthly gains may have strengthened recently, but there are few signs that price pressures are gathering a fresh head of steam.

“…We suspect that a large part of the recent upturn in house price pressures may simply be payback for their weakness earlier in the year. If so, any rise in house price inflation may prove temporary,” he writes.

They also report that in October, home sales were typically either unchanged or weaker than the same period a year earlier. However, sales did edge up in each region during the past three months, suggesting that a modest easing in credit conditions and a stronger labor market are beginning to have an effect.