Have Real Estate Prices Hit Bottom?

August 04, 2012 14:11

Many economists and experts seem to think so. Zillow reported that home prices increased 2.1% from the first quarter to the second quarter of 2012. The last four months have also shown consecutive price increases. Zillow’s chief economist Stan Humpries says “It seems clear that that the country has hit a bottom in home values”. Home prices appear to have bottomed out in February of 2012, and Zillow estimates that prices will rise 1.1% over the next 12 months.

The real estate recovery is not a nationwide phenomenon. Some areas are doing well, but other areas can’t seem to eke out any appreciation. Zillow reports that 98 out of 167 metropolitan areas showed quarterly appreciation. Certain markets are expected to rise quickly over the next 12 months, and other areas are still in a downward spiral. For example, Zillow projects that Phoenix, Miami, Riverside and Portland will experience gains in excess of 4%; however areas like St. Louis, Baltimore, Atlanta and Detroit are expected to stay in negative territory.

Why is it that some areas are doing well, and other areas, not so much? The amazingly low interest rates have stopped the bleeding, but until the excess inventory gets sopped up, prices remain flat. In areas like Phoenix, Miami and Portland real estate inventories are at multi-year lows, so a recovery is in full force. People want to live in these places for lifestyle reasons, but an exodus from the rust belt continues.

The uber low interest rates are making mortgage payments lower than monthly rentals, and with rents up 5.2% over the past year (Zillow Rent Index), consumers are being pushed out of the rental market into the home buying market. In many markets, it is cheaper to buy than it is to rent. Affordability, the combination of post-crash real estate prices with interest rates at 3.5%, has created an environment that is propelling the real estate market. Even though the economy and job growth remain somewhat sluggish, the lure of locking in the low low interest rate is irresistible.

by Brian Porter

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