In recent months, U.S. home prices have been growing at a blazing hot double-digit pace.
But going forward, the pace of home price gains is expected to slow. Paul Diggle of Capital Economics lists three reasons, which we paraphrase here:
- The double digit price gains we've seen recently are not sustainable. "If prices continue rising at 12.1% y/y – the latest CoreLogic reading – housing will be overvalued relative to rents within the next few months and relative to incomes in early-2015. And combined with the assumption that mortgage interest rates settle at their current 4.2% level, mortgage servicing costs will rise by 2%-3% of income each year."
- The home price gains have already made it harder for investors to find "bargains." It will take some time before traditional homeowner demand makes up for the decline in investor demand and this should slow the pace of home price gains.
- Inventory seems to have bottomed and "sellers are starting to return in greater force."
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