US house prices ‘to rise five per cent this year’

3 Jan 2013 

News : American house prices could rise up to 5% in 2013, says a top industry association economist.

The comments from Lawrence Yun, chief economist with the National Association of Realtors, came as November 2012’s showed a 9.8% year-on-year rise.

The figures from the forward-looking Pending Home Sales Index rose 1.7% to 106.4 in November from 104.6 in October. The data reflect contracts signings but not closings.

For each of last 19 months the year-on-year figures have risen and the index has reached the highest level since April 2010, were boosted by changes in household formations, says Mr Yun.

“The latest data is showing a 9% gain in November 2012, verses November 2011 and it has been driven by the very solid factors of job growth, affordability conditions, rising rent and also household formation finally bursting out.

“You can have population increase, but if people are living bunched up, particularly many young adults living with their parents, then it does not create housing demand.

“But now we are beginning to see household formation burst out – and given the prolonged suppression of household formation in the past four years, this bursting out could be a multi-year phenomenon.”

Mr Yun predicts that 2013 will see a sustainable recovery. “The demand is increasing, not because of easy credit, in fact credit is overly stringent and very tight, but it is being driven by solid demand factors and because of that I anticipate another gain in home sales and home prices.”

Assuming that America’s ‘fiscal cliff’ issues are resolved by the middle of January, Mr Yun says prices will grow by up to 5% – 2% less than 2012 – and sales volume will rise from 4.7-5.1million.

“Perhaps home price growth will not be as strong as this year, but none-the-less, I anticipate a four to five per cent growth nationwide – with local variations. With a continuing improvement in jobs, household formation and rents appearing to be accelerating all these factors will contribute to higher home sales next year.”

The other major factor to take into account is underwriting standards.  “The real wild card is that home sales could be even better than my forecast if the underwriting standards begin to return back to normal.

“That is a possibility, as banks have plenty of cash reserves, they understand that if they make loans, they make profit, so there is a profit opportunity. Given that home prices are rising, banks should feel more comfortable that their collateral values are no longer falling.”

But if underwriting standards are tightened, the rise could be less than predicted, he adds.
The index in the Northeast rose 5.2% to 83.3 in November – 15.2 higher than a year ago. In the Midwest, the index rose just 0.1% to 103.8 in November – also 15.2% above November 2011.
Pending home sales in the South were unchanged at an index of 117.2 in November, up 13.9% annually. In the West the index rose 4.2% in November to 110.1, but is 3.2% below November 2011 a listings constraints have limiting sales.
The National Association of Realtors is America’s largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate sectors.


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