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Archive for January 2015

Price Gains Slowing; Markets May Stabilize

In a Wall Street Journal article from December 31, 2014, by Kathleen Madigan, it is mentioned that overall in the United States (as per the Case-Shiller 20 City Index) prices were up 4.6% from the previous year by the end of October 2014. The pace of growth has slowed from 4.8% in September and 10% in the first quarter. The article goes on to say this could indicate the markets are moving toward stabilization.

Understandably, in Florida, there is likely to be more price appreciation, as the state as a whole reflects the recession effect due to the ultra-slow judicial foreclosure periods. All in all, however, it’s definitely time to look to the stable markets with great economies and low unemployment. It is time for the classic long term hold of houses, where the tenant pays off the (very low) fixed-rate mortgage while inflation keeps eroding it.

No doubt newer homes will figure more prominently in 2015. The classic investment thesis holds strong in 2015 with an extra HUGE bonus: super low interest rates are still here – but many think they will vanish in the coming years.
Happy New Year!
Below is the article in its entirety for your review:

SLOWING PRICE GAINS SUGGEST STABLER MARKET

By Kathleen Madigan (WSJ)
Updated Dec. 31, 2014 12:41 a.m. ET

Yearly growth in home prices across the U.S. continued to moderate early in the fourth quarter, suggesting the housing market may be settling into a more sustainable recovery.

Prices nationwide increased 4.6% in the year ended in October, according to the Standard & Poor’s/Case-Shiller home-price report released Tuesday. That was down from 4.8% in September and a far cry from the 10%-plus gains in the first quarter. A 20-city measure more closely followed by economists increased 4.5% over the year in October, also down sharply from double-digit gains earlier in the year.

Demand for housing has slowed significantly in recent months despite stronger job growth, a rebound in consumer confidence and falling gasoline prices, which puts more money into consumers’ pockets. Sales of both new and existing homes fell in November. Yet the slowing trend is a positive for the 2015 housing outlook, say economists who follow the industry.

Price appreciation of about 5% is close to a sweet spot where more buyers are able to purchase a home and current owners accumulate housing wealth, but the market avoids a price bubble that could trigger a financial crisis, as happened in 2007.

“It’s a healthier market because first-time buyers feel more comfortable about coming in,” said Bill Banfield, vice president of capital markets at mortgage lender Quicken Loans, adding that the industry needs more first-time buyers to buy smaller homes that allow existing owners to move up into new construction or to an existing house that better suits their needs.

For 2014, however, first-time buyers accounted for only 29% of existing-home sales, according to data from the National Association of Realtors, much less than the historical norm of 40% for sales of primary residences.

Economists at IHS Global Insight agree slower price appreciation is positive for the housing outlook. “Home appreciation at a reasonable pace makes homeownership an attainable dream,” said Stephanie Karol, a U.S. economist at IHS Global. A repeat of the double-digit growth seen in early 2014 “would risk producing a bubble,” she said.

But just as each real-estate market is local, she pointed out the Case-Shiller price index of 20 cities masks the individual pricing experience going on across the country.

“Prices are rising fastest in cities such as San Francisco where geographic or legal constraints limit new construction,” Ms. Karol said. Cities with fewer zoning laws and more space—such as Charlotte, N.C., and Phoenix—are seeing smaller price gains.

Still, the average home-price gain of about 5% is good, she said, and IHS Global is upbeat about home demand and prices in 2015. The forecasting firm projects home prices, as measured by an index compiled by the Federal Housing Finance Agency, will increase 5% over the course of next year and sales of new and existing homes will average 5.92 million, up from 2014’s current pace of about 5.3 million.

Here is a link to the Wall Street Journal U.S. Housing Market Tracker:

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