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Housing Outlook, 2016

Dec. 10, 2015 Kiplinger

After more than a decade of head-snapping ups and downs, the housing market has settled into a steadier, less-spectacular groove. In 2015, home prices nationally rose 4%, following a 6.4% hike in 2014, according to Clear Capital, a provider of real estate data and analysis. Kiplinger forecasts that home prices will moderate even more in 2016, rising 3%—at the low end of the historical range.

Home values rose in 236 of the 276 cities tracked by Clear Capital. In most parts of the U.S., prices are still regaining ground lost in the bust; they remain nearly 19% below their peak, on average. Over the past year, prices rose by double digits in a few dozen cities, many of them clustered in areas that were hard-hit and where homes are still relatively cheap, such as Florida, Michigan, Nevada and California’s Central Valley.

Among larger cities with the biggest gains, Miami (up 10.1%) and Seattle (10.6%) have benefited from sales to international investors. Prices in Dallas (up 10%), Denver (12%) and Pittsburgh (11.5%) never really bubbled up nor tanked, and now they benefit from strong economies. Home prices in the cities of coastal California are taking a breather after run-ups that have made homes there less affordable.

At the bottom of the rankings, prices in a few dozen cities fell over the past year. These are mostly smaller cities located in the Northeast, the industrial Midwest and the South. In Nevada, New Jersey and New York, banks are finally pushing through foreclosures that had been dammed up either by legislation or by judicial process, and that dampened home prices.

Speed bumps in supply

Sales of existing homes rose by nearly 9% in September over September 2014, to 5.6 million, says the National Association of Realtors (NAR). That’s the second-fastest pace since early 2007. Chief economist Lawrence Yun says the trend represents the release of pent-up demand by homeowners who have regained enough equity to sell and trade up. But when you combine that with homeowners who might move but are stuck because they don’t have enough equity, plus a notable lack of newly built homes, you have a shortfall of homes for sale.

That tight supply is the speed bump for many home buyers, as well as for sellers who want to trade up. Nationwide, inventory has hovered at about five months’ supply (the time it would take to sell the current number of homes for sale at the current pace), which is considered equally favorable for buyers and sellers. But inventory in many cities is much lower and strongly favors sellers.

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