The trend of rising home prices continues and is expected to carry on, but don’t expect double-digit gains as a norm, analysts say.
Home prices rose 12.1% in April, making it the 14th consecutive month of year-over-year increases, according to the latest CoreLogic Home Price Index. This is the largest annual gain since February 2006, a clear sign of a market in recovery mode.
However, double-digit gains are also cause for some concern, say experts who recall the unsustainable home price increases before the last housing downturn.
“While our recent projected CoreLogic HPI indicates continued home price gains, bolstered by still-tight supply and strong demand, we expect recent double-digit gains to moderate as markets normalize,” said CoreLogic.
But has the damage already been done?
With some early post-recession investors in distressed single-family properties saying the market overheated and they’re pulling back, it appears a sudden shift is taking place in the market.
Although home prices have risen significantly these past few months, the housing market is still more than 20% below the April 2006 peak and several important factors could moderate rising prices.
Although rising home prices have created fear of another bubble, they have also helped 2.4 million underwater borrowers since the last quarter of 2011.
“Regaining equity creates options for those who might now consider selling their homes because they can close a transaction with enough cash to make a down payment on the next home,” said CoreLogic. “Higher prices also attract the interest of builders who see opportunity in increased demand. In both cases, a broader supply brings inventory more in balance with demand.”
The current January to April year-to-date increase in the supply of existing homes is the third highest in nearly 30 years, indicating a lessening in the inventory crunch.
“The increase in the supply in context of current tight underwriting standards should deflate the risk of any bubbles,” said CoreLogic.