Housing Market Returning to Normal?

Fiserv Case-Shiller projects that by the end of 2013 home prices will be rising in nearly every metro area in the U.S.

Steady increases of home prices and home sales volume throughout 2012 made last year “the first positive year for both of these metrics since the housing market crash,” according to the Fiserv Case-Shiller Indexes, and are the grounds for continuous recovery through 2017.

For the 12-month period from the third quarter of 2012 to the same quarter of 2011 home prices are expected to increase a healthy 0.6% and another 3.7% between 3Q 2013 and 3Q 2014.

Third-quarter 2012 price increases in approximately 62% of the 380 U.S. metro areas monitored by the index, up from 12.5% in the same period in 2011, indicate a broad-based home price recovery is under way.

Fiserv data also show that some of the areas that suffered the most severe declines during the housing market crash saw the highest price increases.

As the recovery gains “further momentum in subsequent years” home prices are projected to grow at an annualized rate of 3.3% from the third quarter of 2012 and through the third quarter of 2017.

Since 1997, according to Fiserv’s chief economist, David Stiff, last year was the first when once again the housing market “resembled something recognizable as normal.”

Gains, however, will become more obvious once “the homebuyer tax credits in 2009 and 2010 are excluded,” Stiff said.

If in 1997 housing prices grew 3%, he explained, from 1998 to 2006 prices appreciated at above 5% often with double-digit price increases until the market collapsed. Only by the end of 2011 “housing markets finally started to stabilize,” he says, and returned “to a historically normal pace of price appreciation” at yearend 2012 after 15 years of home price changes and sales volumes “boosted by a bubble mentality or crushed by crash psychology."

Stiff also warns that there are limitations to parallels to previous years. For example, in today’s market, millions of homes with delinquent mortgages, in the foreclosure process, or in REO inventories listed for sale or waiting to be sold. So among others large tranches of bank-owned inventory “could partially reverse” double-digit price increases in some markets until REOs are liquidated.