Home Values to Log Best Year Since the Housing Bubble

homes

With the help of favorable interest rates and low inventory levels, the real estate market has been one of the strongest areas of the economy in recent years. A rebound in home values has lifted millions of homeowners from underwater status and boosted confidence across the industry. However, the rapid pace should not be expected to last next year.

Home values remain strong as we close out 2013, but the pace is slowing. In November, home values jumped 7.1 percent from a year earlier, according to the latest report from Zillow. That is down slightly from the appreciation peak of 7.3 percent made in the summer selling season. On an annual basis, 88 percent of metros in the United States experienced home value appreciation.

“Much of this year’s rapid growth in home values can be attributed to very strong demand, as low mortgage interest rates, relatively low home prices, and a slowly improving economy helped draw buyers into the market,” said Zillow Chief Economist Dr. Stan Humphries. “Those dynamics are now giving way to more moderating influences, including rising mortgage interest rates, flagging investor demand, and slowly increasing for-sale inventory. This slowdown in home value appreciation will contribute to a more balanced market and will help to ease some emerging affordability problems in a handful of very hot markets, particularly in California.”

The overall cumulative value of all homes in the nation at the end of this year is expected to reach $25.7 trillion, up $1.9 trillion from the end of 2012. That represents the second consecutive annual gain and the best year for home values since 2005 — shortly before the housing bubble popped. Over the past two years, U.S. homes have gained back $2.8 trillion, or about 44 percent of the total value lost during the financial crisis. The aftermath of the housing bubble sent home values down by $6.3 trillion between 2007 and 2011.

Placing the nation’s total housing stock value in perspective, $25.7 trillion is more than the combined gross domestic product of China and the U.S. in 2012. The largest metro areas for home value in 2013 are New York City and Los Angeles at $1.9 trillion and $2.2 trillion, respectively.

Looking ahead, Zillow expects annual appreciation in 2014 to be closer to historic norms of between 3 percent and 5 percent. “We expect these gains to continue into next year, though at a slower pace,” explained Humphries. “The housing market is transitioning away from the robust bounce off the bottom we’ve been seeing, toward a more sustainable, healthier market.”

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