Market indicators continue to point to an imminent slowdown in home price gains—further allaying fears of another housing bubble in the making, Capital Economic says.
In the firm’s latest edition of US Housing Market Analyst, property economist Paul Diggle notes investor activity has fallen off nearly one-fifth over the last four months, with investor sales dropping from 23 percent to 18 percent as the inventory of heavily discounted distressed homes declines.
On the other hand, the ongoing rise in prices has encouraged more sellers to enter the market, bringing new listings up faster than home sales and resulting in a 10 percent inventory improvement since the start of 2013.
“With sellers motivated by the earlier rise in house prices, we expect the loosening in supply conditions to go much further over the next year,” Diggle said. “The upshot is that the pace of house price gains will slow.”
With early signs already showing price growth “losing a bit of steam”—including a decline in asking prices in July (as measured by Trulia)—Capital Economics stands by its forecast of an 8 percent increase in house prices over 2013 followed by 4 percent gains in subsequent years.
Meanwhile, even as prices continue to rise, the company’s preferred metrics show housing remains on the cheap side, with the National Association of Realtors’ Affordability Index suggesting the median household has 178 percent of the income required to buy a median-priced home.
“Of course, should supply conditions not loosen to the extent that we are expecting, double-digit price gains could continue,” Diggle admitted. “But even then, we think it might take 2 1/2 years before housing became overvalued.”
By Tori Barringer