Home Prices Will Zigzag For Years

San Francisco

Photo: El Frito via Flickr

December home prices were up 11.8 per cent year-over-year, the largest gain since 2006, according to RadarLogic’s latest RPX monthly housing market report. But this isn’t a “real and sustainable” recovery according to Quinn W. Eddins, Director of Research at RadarLogic.

For that, we need a rise in home prices that are driven by job growth and improving consumer confidence. 

In the absence of this, Eddins says rising home prices will impact demand, cause a rise in supply and then reduce the pace of rise in home prices or even reverse it.

Eddins expects home prices to temporarily decline again this year, but a decline will prompt speculative demand cool housing starts and sales.

“Home prices are likely [to] follow such a saw-tooth pattern for a number of years, until consumer demand increases and inventories of distressed homes return to historical norms,” writes Eddins.

Though Eddins does warn that the impact of investors on this saw-tooth pattern is hard to estimate. 

Corporate investor transactions (purchases) increased 62 per cent year-over-year in November 2012, driven by financial institutions building their portfolio of rental homes. These purchases accounted for 12 per cent of all transactions in 2012, up from 8 per cent the previous year. 

What’s more, all transactions were up just 8 per cent, while non-corporate investor purchases were up just three per cent. 

“While the overall RPX transaction count may suggest a healthy gain in sales activity, most of that gain took the form of purchases by corporate investors. When we look only at non-investor purchases, the year on year gain is much less remarkable.”

Sales last year were driven by investor activity, low interest rates, and a shift in sales mix and none of this is expected to have a lasting impact on home prices.

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