Real Estate & Mortgage Insights

Are Rising Home Prices in 2013 a Sure Bet?

Last year was a great year for the U.S. housing market, compared to the previous five or so, giving a sense that the mortgage slump may finally be over. According to the Standard & Poor's Case-Shiller home-price index, home prices rose 4.3 percent nation during the 12 months ended in October, a major improvement from the flat or declining home values in recent memory and the fastest pace since 2005. With such progress, home prices are sure to continue on their upward incline, aren't they? There is still room for debate according to analysts.

A Bright Future

"It is clear that the housing recovery is gathering strength," said David M. Blitzer, chairman of the index committee at S&P Dow Jones Indices, in the press release of the latest price index. Only two of the twenty cities in the index posted lower prices than the previous year, showing that price gains are truly a national phenomenon and not limited to a few localities.

Rock-bottom interest rates and a shortage of inventory have been the key factors in pushing prices higher in most areas. And after several years of a dead market, some believe there is plenty of pent-up demand ready to keep the sales and prices growing.

"I have no doubt that we have turned the corner," said Dean Baker, co-director of the Center for Economic and Policy Research, who closely tracks the housing market in a Washington Post article. "I would be surprised if we see any sustained price decreases in the near future. What we can expect is to see modest price appreciation, something in the neighborhood of 4 percent for the next several years."

Cause For Concern

Not everyone, however, is convinced that prices will continue on their upward trajectory.

"Low prevailing mortgage rates, the limited supply of existing homes for sale (either due to the few foreclosure completions or the number of underwater borrowers who cannot sell), and the anemic levels of new home construction are facilitating affordability and feeding demand," noted analysts at Fitch Ratings as quoted in a CNBC article. "These factors are offsetting weak fundamentals that would otherwise hinder home price growth, such as high structural unemployment and lackluster wage growth."

Fitch believes that there is still a slew of foreclosed properties set to be released on the market in 2013. These are mainly in so-called judicial states, where foreclosures must be reviewed by a judge and a large backlog has been created over the past two years. The increase housing inventory will then lift pressure on home prices and some areas could see prices drop or flat-line again.

Stan Humphries, chief economist at Zillow says today's rising prices are due to a shortage of sellers.

"I personally think that a lot of the price appreciation we're seeing in many markets right now is because the market of tradable homes is thinner than usual because of high negative equity," he said. "This condition will change as home price gains pull homeowners out of negative equity and the market becomes more fluid."

So price appreciation now could liberate a large segment of underwater homeowners, allowing them to sell their homes, but that added inventory could push prices down again. Humphries does think prices will still rise this year, just not as fast as they did in 2012. The Zillow home value index climbed 5.2 percent on a yearly basis in November, but he says it is unlikely to rise more than 2.5 percent in 2013.

So between the two sides, it seems that home prices will continue, perhaps at a slower pace and not equally across the country, but a forecast for any growth is still a breath of fresh air in this post-Recession economy.