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On the mend at last

The current state of the housing market

Created date

January 22nd, 2013

October 2012 was a good month for the housing market, which posted its biggest gains in over six years. Since June 2006, housing prices have risen by more than 6%, according to a report from CoreLogic, a data and analytics company based in Irvine, Calif. The jump is the eighth consecutive increase in national home prices, which experts have been carefully watching since the housing bubble burst in 2008. It s the latest round of improvement in a market that experts say has been actively on the mend since spring 2012. Most areas of the country are experiencing house price increases compared with a year ago, says CoreLogic s senior economist Molly Boesel, who adds that market price tags in 46 of the nation s 50 states have posted year-over-year gains. The question remains, what is driving the long-awaited bounce in real estate? According to Svenja Gudell, senior economist with Zillow, an online real estate marketplace, the answer rests in a combination of factors, one of which is a healthy demand for housing.

Consumers back in the mix

To start with, we ve seen a marked rise in demand not only among investors but also consumers looking for a place to live, observes Gudell. What s most promising about this is the fact that what we re experiencing isn t artificial. It s not the result of a tax credit or a government-sponsored initiative; it s natural growth. Gudell attributes a portion of this growth to the population of American homeowners emerging from what economists call negative equity. The number of homeowners underwater on their mortgages has fallen with the rise in home prices, due in part to a limited housing inventory which Gudell describes as part of a clean and rinse process. What we re witnessing essentially amounts to a healing process that occurs in repeating cycles, she notes. It begins with a cycle of tight inventory, which leads to higher prices, which then unlocks a population of sellers who were in negative equity. In turn, you see people buying up those houses, and the cycle restarts. Looking back over the last two years only confirms the market s upward trend. According to Gudell, in 2010, home prices had yet to hit bottom along with foreclosures. Furthermore, 2012 saw growing confidence among buyers and builders. I think that 2012 was the beginning of a real consumer confidence comeback with buyers actually wanting to buy homes, explains Gudell. Year over year, existing home sales were up and new home sales are starting to come up too. And while Gudell admits that October s 6% is probably more the exception than the rule as far as price increases are concerned, the housing trend will remain on an upward path. Currently, we predict home values to be up nationally by 1.5% between October 2012 and October 2013, so prices will continue to appreciate, she says. Though this may not be the strong appreciation we ve seen recently, we still expect very positive developments in the housing market s immediate future. michael.williams@erickson.com

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