Housing prices have experienced a slight gain over the last few months. Many have taken this as a sign that we have hit the bottom of the market. As always, interpretation of the data is subject to differing opinions. On the one had we have some concluding prices will experience a slight increase and on the other some expect a further decrease. Which is right? Only time will tell. But here are two representative points of view.
Prices will rise
For instance, according to the Zillow Home Value Forecast, national home values are projected to rise by 1.1 percent into the second quarter of 2013. “Looking forward, we expect home values to remain relatively flat as the market works through a backlog of foreclosures and high rates of negative equity,” said Humphries. Among the 156 markets covered by Zillow, 67 are expected to show gains in the same quarter in 2013. Phoenix is projected to see values rise the most at 9.9 percent. Other metros expected to see significant increases are Miami metro (+6.1 percent), Riverside, California (5.6 percent), and Portland, Oregon (+4.3 percent).
Prices will decline
“Those people looking at current results and calling a bottom are being dangerously short-sighted,” said Michael Feder, Radar Logic’s CEO. “Not only are the immediate signs inconclusive, but the broad dynamics are still quite scary. We think housing is still a short.” According to Radar Logic’s RPX Composite, which is based on 25 metropolitan statistical areas, prices in May rose 2.6 percent month-over-month and 0.7 percent year-over-year.
Despite these findings, Radar Logic contends the increases are due to temporary forces, such as the warm winter weather, and appreciation may not be consistent for the entire year based on previous trends.“Even if the mild winter hypothesis turns out to be false, home prices are not likely to appreciate on a sustained and meaningful basis. Rather, short-term appreciation will paradoxically short-circuit long-term appreciation and perhaps trigger further declines,” Radar Logic stated.
The analytics company explained the higher prices seen will lead to more supply as financial institutions start unleashing their foreclosure inventory and homeowners that were unable to sell due to negative equity will at last list their homes. As supply increases, prices will move downward again. Also, with much of the current demand coming from institutional investors, Radar Logic also argued that the rise in prices may mean fewer purchases from investors, who may not be able to yield the returns they are seeking as prices climb. “From one year to the next, price trends tend to vary much more in the second half of the year than in the first,” said Quinn Eddins, director of research at Radar Logic. “We will have to wait to see data for October or later to know whether 2012 will turn out to be a good year or a bad year for home prices.”