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Century 21 Gold

REAL ESTATE: How high will home prices go?

When champagne bottles were uncorked this New Year’s Eve, I’m pretty sure some revelry was measured for a year that ended on a higher note than most predicted.

The real estate market that was hobbled in 2007, and inflicted deep and years-long wounds on the Inland economy finished out 2012 with a significant home-price rebound.

“It’s up more than 10 percent year-over-year,” Trulia chief economist Jed Kolko said, describing the better-than-expected gain in the Inland region of San Bernardino and Riverside counties as a leading indicator of more home-price recovery to come in 2013.

Every local market across the country where prices were hit the hardest have now seen significant price gains, he said.

“Early in the year, home-prices rose strongly in Phoenix and parts of the Bay Area,” Kolko explained. “Later in the year, the inland regions of California took off — along with Las Vegas. Now, even Atlanta is rebounding.”

Even as every major index shows sales-price gains in 2013, the sharp decline in inventory portends to keep the lid on significant price escalation, he said. “The big question for 2013 is whether today’s price gains will continue strongly enough to encourage builders to build and homeowners to sell.”


Bruce Norris, a Riverside-based analyst and principal of The Norris Group, in a quarterly report to investors said the absence of inventory will work to California’s advantage.

The New Year’s reveling could be downright frothy next year at this time — given Norris’ view that homeowners in California could see as much as a 20 percent increase in the median price of homes across the state.

“My best guess is that (in) California we will have significant price inflation,” Norris said. “Prices could escalate so strongly that we will think we are in 2004, instead of 2013.”

Norris, who predicted the sub-prime lending and foreclosure crisis in January 2006, as well as the real estate boom that began in 1997, and its subsequent doubling of home prices, offered three reasons median home prices in California will go up:

Properties that normally were bought by owner occupants are being snapped up by billion-dollar hedge funds, crimping inventory levels at one-month levels and prompting “normal sellers with equity” to get the idea their property might be worth more than the last sale.

People who lost their homes to foreclosure in 2008 and 2009 are returning to the market.

Interest rates remain at all-time lows, putting some mortgage payments at levels below rent. That’s fueling demand.


The California Association of Realtors was more conservative on its median home pricing prediction. CAR sees a gain in 2013 of 5.7 percent. Kolko steered away from declaring a percentage gain, but affirmed it will be less than 20 percent.

“There are fewer bargains,” he said, so there’s less room for prices to increase.

Coming into 2013, Kolko said the Inland region is still dealing with high unemployment and foreclosure. RealtyTrac said 2.9 percent of all homes with mortgages in the Inland region are in some state of mortgage distress.

Even so, Kolko sees one other dynamic re-emerging in the marketplace: Price disparity between inland regions and property on the coast.

Big price differentials kicked off a big wave of migration to the Inland region in 2004, a phenomenon that helped ratchet up price. With the coast recovering faster on home-price and rents on the rise, Kolko sees a second wave heading this way.

“With prices rising in the Inland faster than rent, some investors may choose to take advantage of price.”


Inland economist John Husing said home-price appreciation in 2013 is likely to be 2 to 3 percentage points lower than 2012.

“It’s a weird market,” he said, basing the view on a report by that notes that 47 to 48 percent of the homes in the Inland region are underwater, meaning the owners owe more on their mortgage than the house is worth, and that 38.5 percent of all foreclosed property is being sold to investors.

“Pricing in the open market is being set by a reduced number of houses,” Husing said, fueling a situation where capital funds out of Wall Street are outbidding families for local houses.

“It’s not normal supply and demand,” he said.

What’s you’re take? Will we see modest gains, a stalemate in price appreciation, regained home equity — or, a consumer shutout?

Published Sunday, January 27, 2013 7:36 AM by Gold Real Estate Real Estate

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