Home Values Rise Quickly but Unevenly
The increase is the largest annual gain since 2006, near the peak of the housing bubble, and is greater than the typical appreciation seen in healthy markets. Zillow forecasts an increase next year of about 3.3 percent, more in line with typical housing market appreciation. (Historically, annual appreciation averages about 3 percent, according to Zillow’s research.)
Stan Humphries, Zillow’s chief economist, said he expected the housing recovery to continue this year, but at a “more sustainable” pace. Tight inventory in some markets, combined with strong demand and a slowing pace of foreclosures, contributed to the rise in values, he said. As values rise, fewer homeowners are underwater, or owe more than their home is worth, and may be more willing to put their homes on the market. The increase in inventory, in turn, should moderate future price increases.
As home values rose in the fourth quarter, foreclosures slowed, to 5.22 of every 10,000 homes nationwide in December. That was the lowest pace since November 2007, when the rate was 5.18 per 10,000 homes, Zillow said. Sales of foreclosed houses stood at 12 percent of the market, down 4 percent from the end of 2011.
The housing recovery, however, is uneven. Phoenix, for instance, which has had strong investor interest, showed an increase of more than 22 percent year-over-year, a pace reminiscent of the real estate bubble. Cincinnati and Chicago, meanwhile, showed slight declines. Seven of the top 30 metropolitan areas in the study, however, showed an increase in home values of 10 percent or more.
While it’s encouraging to see housing values rise rather than fall, there’s a risk that consumers may get used to such large increases and expect them to continue, Mr. Humphries said. And that’s probably not a good thing. The recent volatility in the housing market makes it easier to think of housing as a shorter-term, speculative investment, he said, rather than as a place to live. “Housing should be thought of as a long-term investment.”
Has the recent rise in home values changed your perspective on housing as an investment?