Factors for Climbing House Prices
The housing market was slowly recovering during the last years, and lately things have been heating up quite a bit. In 2012, prices took off, and bounced in 2013. In 2014, the double-digit growth has slowed to some extent, but overall prices are still moving higher. We are bullish on market but also understand some of the limiting factors.
In February 2015, prices increased 4.2% from 2014, as reported by the S&P/Case-Shiller U.S. National Home Index.
Some local markets are ablaze, with offers higher than asking prices and bidding wars becoming common practice. In San Francisco, Trulia reported 74% of houses placed on the market were bought within 2 months of being listed.
The average asking price of San Francisco was $1,099,000. A number of other markets in California, together with Seattle and Salt Lake City, are enjoying similar real estate booms, the Trulia report detected.
House prices in Dallas and Denver have gone beyond the levels touched in the course of the housing boom, as outlined by S&P/Case-Shiller.
If prices continue steadily to outpace income and inflation in these markets, that can at some point become a problem.
“Price increases in the most desired places can’t continuously outstrip income growth endlessly,” said Keith Gumbinger, VP of HSH. “In due course, no one will be able to afford a house.”
Some limiting factors to the housing market recovery.
Property owners aren’t selling:
Current home owners list their house to either trade up or scale down, opening up supply for first-time buyers to step in the market. One cannot happen without the other.
Or as Gumbinger put it: “The whole train has to move simultaneously.”
However, current property owners aren’t putting up “For Sale” signs by the thousands. Some are concerned they won’t manage to find a new house, others are waiting to make back their home’s value they lost during the crash. Some feel the market will continue it’s trend and they want to ride the uptick even higher.
“Property owners who may want to sell could actually still be underwater or in too low of an equity situation”, according to Gumbinger.
Loan providers still aren’t doing what they’re supposed to: lending.
Strict practices have made it more difficult for buyers to get a mortgage since the bubble collapsed in 2008. Banks have loosened up just a little recently, but lending is still considerably more restrictive than it was before the housing market collapse. Buyer’s definitely have to prove without a doubt you can afford the mortgage you’re applying for, otherwise the loan will be denied.
That’s not really a bad thing, but Crowe believes standards are actually a little bit too tight. “Underwriting standards have been tightened up more than necessary”, Crowe pointed out. “It’s an overreaction to unmistakably loose standards during the last decade.”
Limited inventory and soaring prices can be possible warning signs of a bubble building up but industry experts think it’s too early to determine. Read our previous article on this subject here. Is there a Housing Bubble
“It’s not apparent yet”, said economic expert Robert Shiller on a potential bubble. Shiller helped develop the S&P/Case-Shiller Home Price Index.
In case there is one, it’s a different kind of bubble than the last one. Supply and demand helped inflate that bubble, however, the demand was increased by loose mortgage lending standards that in some cases encouraged buyers to apply for loans they couldn’t manage to pay for.
“That bubble was fostered by a finance-related force,” said Gumbinger.