Jun 24, 2013
"Unsustainable" price rises won’t be sustained
24 Jun 2013
Posted by Andrew Kantor
Home prices can’t keep rising this quickly forever. That’s what Realtor magazine is reporting that CNBC is reporting that NAR has said. (I know, right?)
Here’s the deal: In May, NAR reported that home prices were up 15.4 percent from the year before. And that marked six months of those kind of double-digit price jumps. Said NAR’s chief economist Lawrence Yun, "[I]t cannot continue."
Which, of course, makes perfect sense, and (hopefully) no one is expecting it to continue. Prices are shooting up for several reasons, none of which will apply forever.
1. It’s a natural correction. Prices skyrocketed, then plummeted when the bubble burst. Bargain hunters jumped in and fueled demand, and that pushes prices up.
2. More higher-priced homes are selling; fewer lower-priced ones are. That’s skewing the average and median price.
3. The glut of distressed homes — short sales, foreclosures, and REOs — is drying up.
4. The distressed homes that are on the market aren’t selling at a steep discount, thanks to a general lack of inventory.
All these things add up to higher prices, and all these things are a legacy of the bubble and crash. In other words, the recovery is simply playing out.
Prices will rise, but soon they’ll level off — probably at a point a bit above the historical average. Then more sellers will jump into the market, inventory will increase, and prices will drop… and then we’ll see headlines about falling home values, accompanied by much hand-wringing.
So yes, double-digit price gains can’t be sustained forever. And they won’t be.