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Huge home price gains expected to moderate as supply increases

A Compton home on the market this year.
(Gary Friedman / Los Angeles Times)

Dramatic double-digit percentage home price gains have raised concerns of a new housing bubble, but those eye-popping increases should moderate by the end of this year as more supply comes on the market, according to a national real estate data firm.

Historically low inventory has caused bidding wars in many markets, driving up home prices at a rapid clip as traditional home buyers compete with all-cash offers from investors.

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But the price gains have also spurred new construction and enticed sellers to place their homes on the market. That will help ease the inventory crunch that is accelerating price jumps, real estate firm CoreLogic said Wednesday in a June market report.

CoreLogic economist Sam Khater said that although prices have risen, they are still 25% from their peak and “are back to about where they should be” when accounting for long-term trends and incomes.

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“While expecting strong price growth in the near term due to the still tight inventory, we expect that growth to decelerate by the end of this year and into next year as inventory begins to rise and ease the tight supply pressures,” Khater said in statement.

In the report, Khater wrote that although inventory is very low, it has expanded fast this year. From January to April the supply of existing homes for sale grew at the third-highest rate in nearly 30 years, he wrote.

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More supply and tight-lending standards should lessen any bubble risk, Khater wrote.

Home prices nationwide rose 12.1% in April — the 14th consecutive year-over-year increase, according to CoreLogic’s Home Price Index.

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Investors played a significant role in that jump, buying lower-cost distressed properties and fixing them up to rent. But now, CoreLogic said, some of the earliest investors in distressed homes are “declaring the market overheated and indicating their intentions to pull back.”

Interest rates are also on the rise. Last week, Freddie Mac said lenders were offering a 30-year fixed mortgage at an average rate of 3.98%, up from a record low of 3.31% in November.

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Higher rates should also put a check on home price growth, CoreLogic said.

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