The cover story in this Week’s Barron’s Magazine has the headline Home Prices Headed Up 7%. You probably can’t access that article without a subscription but they make the case that:
- The Case Shiller index has been moving up
- Various forecasters are predicting price increases of around 10% over the next 3 years
- Areas impacted by the oil boom will see huge price increases
- Rents are rising
- Mortgage rates are stupid low
- Employment is improving, though slowly
- Bank credit is increasingly available
- Home sales are showing healthy year over year increases
- Inventory of homes for sale are extremely low
- The shadow inventory of distressed properties is being absorbed by investors
- Home builders are only building half the new homes that are normally needed each year
When I reduce the article to this set of bullet points somehow it becomes much more convincing. Given this set of facts, some prognosticators are speculating that people on the sidelines are finally starting to worry about missing the boat.
However, they also point out the obstacles to a sustained recovery:
- The shadow inventory of homes in foreclosure is 6% of the total housing stock vs. a more normal 2%
- 13 million underwater homeowners stand ready to strategically default without warning
So Barron’s wraps up the article by presenting metro area home price forecasts from Local Market Monitor, whose clients include a variety of banks, mortgage companies, builders, and real estate investors. They base their forecast on per capita income, employment, job growth rates, and building permit activity.
The results are summarized in the table below, which I don’t expect you to be able to see in it’s shrunken down size. But you can click on it for a larger view. Local Market Monitor is predicting a 7% rise in prices over the next 3 years for the nation as a whole. Chicago is at the low end of the spectrum, predicted to only rise by 3% in that time period, while metro areas like Houston and Phoenix are predicted to rise by 26% and 22% respectively. Oh and if you can explain to me why the 36 month forecasts are different than the 3 year forecasts I would appreciate it. Last I checked 36 months is 3 years.
Yeah, I know. You can find a forecast to support any outcome you want to believe in. But I thought this was interesting and more and more forecasts have a positive bias these days.