Is this the Light at the End of the Tunnel?

This year home prices have skyrocketed faster than anyone could have predicted, and as the year has continued, the increases have been unrelenting. For some experts, these rapidly changing rates have produced fear that the market is forming another bubble, but now many professionals are beginning to believe that there is light at the end of the tunnel, and the market is on its way to a full-blown recovery.

rising home sales
Erik Johnson, senior economist of HIS Global Insight, is one of them. In an emailed analysis, Johnson was quoted saying, “The long-awaited housing recovery is in full swing. We expect housing to be a key driver of growth for at least the next couple of years.” Johnson is among many that believe this and there is a lot of information which supports it.

For the first time since 2008, two major cities – Denver and Dallas – have surpassed their pre-crisis peaks. In fact, average home prices across 20 different cities – measured by the Standard & Poor Case-Shiller Index of 20 Large US cities – have increased to what they were in the spring of 2004, when the market was healthy.

To top this off, the Californian market has been one of, if not the single most impacted by these changes. In San Francisco, realtors saw some of the highest gains in the country, when prices moved up by 24.5% year-over-year from May of 2012. Although not quite as extreme, San Diego and Los Angeles have both seen major increases between 17.3%-19.2% respectively.

Although these rates may seem alarming, there is evidence which supports that the market will not bubble as it has before. These price increases have been a product of low mortgage rates, a high demand from investors, and a lack of homes available on the market. As the prices increase though, more owners will be tempted to sell. Along with increased development, decreased affordability, and tighter lending standards, it’s likely that we will see a decrease in demand later this year and into next year, slowing these price gains and effectively diminishing the chance of another bubble.

Do you think the market is in a full scale recovery? What are your thoughts?

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  • Anne Swanson

    It looks like the real estate market is heading for a full scale recovery but I’m worried about the stock market heading for a downturn after a crazy year up.