EMERYVILLE, CA-The end of 2013 saw the momentum in single-family housing prices cool off on a year-over-year basis, although demand still outpaced supply, ZipRealty Inc. said Thursday. Longer term, most forecasters surveyed by Seattle-based Zillow Inc. are predicting that prices will gradually stabilize over the next few years as large-scale investors begin tapering off their activity in this arena.
Median sales prices in the 24 markets surveyed by ZipRealty ended ‘13 with an 11% Y-O-Y increase, compared to gains of 15% to 16% seen this past summer and fall. The sold-to-list price ratio also trended downward to 98.4% as of Dec. 31, after holding steady at 99% through the spring and summer.
“Overall demand across the 24 metros surveyed by ZipRealty still outweighs supply, with pending sales up 13% and the inventory of homes for sale down 8% year-over-year,” says Lanny Baker, CEO of ZipRealty. “Price momentum is lagging in the East, with Baltimore and Long Island sales prices flat year-over-year. Philadelphia saw 1% sales price growth and Boston edged up 5%.”
Total housing inventory in the markets surveyed by ZipRealty ended the year with an 8% decline Y-O-Y. Chicago and two Texas metro areas—Houston and Dallas—showed the greatest declines in inventory, with decreases of 25%, 22% and 21%, respectively.
Zillow asked its panel of 110 economists, real estate experts and investment and market strategists to predict the path of the US Zillow Home Value Index through 2018 and solicited opinions on investor activity, among other topics. Specifically, the inquiry focused on institutional investors, notably the Blackstone Group, that in the past few years have bought up thousands of homes nationwide, fixed them up and kept them as rental properties.
Although such activity helped put a floor under sales volumes during the depths of the housing recession, Zillow notes that it also created competition for many would-be buyers and contributed to rapid price spikes in some areas. The company asked panelists to gauge the impact to the market if institutions significantly wound down their investments in this area during ’14. Of those who expressed an opinion, 79% said the impact would be “significant” or “somewhat significant.”
Panelists were also asked when they thought these investors will have sold the majority of homes in their portfolios. Fifty-seven percent of those who expressed an opinion on the subject said they expected this to occur in the next three to five years.
“Buyers entering the market in the next few months will not be competing with cash-rich investors like they were last year which should be some small solace given the higher prices and mortgage rates that they will encounter,” says Stan Humphries, Zillow’s chief economist. “The gradual decline of investor activity should be viewed as another sign of the market slowly returning to normal, and I agree with the panel’s expectations that there will not be a rush for the exit by institutional investors.”
The panel expects home prices to appreciate by 4.5% through year’s end, well ahead of the historical norm of 3% annual price appreciation. The panel sees a cumulative change in home values of 19.7% through the end of 2018, by which time many panelists think home prices could exceed their April 2007 peak.