What’s up with the United States Real Estate Market

December 7, 2014


United States Real Estate Market Every day there are contradictory headlines about the United States real estate market stating the real estate market is rebounding, home sales are bouncing back, another bubble is forming, real estate disappoints, and the housing market is falling apart. Are houses appreciating or have they peaked? What’s really going on?

As with analyzing all investments, it is good to take a step back to look at the situation. Real estate investment via their home is a major asset for many individuals. It is important to know how to value it and to project its future valuation. In addition, many wish to invest in second homes, rentals, or real estate investment trusts (REITS).

House prices in the United States which peaked in 2006, measured by the S&P/Case-Shiller price index, fell 34% from the second quarter of 2006 through the fourth quarter of 2011. In some places prices fell by 60% during 2008 and 2009, but by 2012 some improvement was beginning to take place. However, many experts stated that it would take years for the market to return to normal given the weak economy, the number of houses in foreclosure and the number of homes underwater where owners owed more on them than their current value.

But house prices roared back. In 2012 existing homes sold at their fastest pace since 2007 and new home sales finally posted a year over year increase. Prices began an upswing. In 2013 median prices were up 11.6% nationally over 2012. In the Northeast median property prices rose 51% from 2009 to 2013. Some now fear a new bubble is developing and that the boom is over. They cite the major slowdown in house price increases as shown by the June 2014 S&P/Case Shiller Home Price Indices. Every city experienced a reduction in its year over year rate of appreciation. Nationwide the increase was 6.2% from June 2013 to June 2014.

Actually seeing home prices return to a more sustainable appreciation rate is a good thing. Analysts at Barclays expect nationwide housing price increases to be about 7% this year. As unemployment falls, pent up demand can kick in. This increased demand should offset later small increases in interest rates. Inventory can return to more normal levels as homes no longer underwater can be put on the market. Builders’ confidence data increased in August as they see a positive home buying environment. The index is now at its highest level since January.

There are different ways to take advantage of an appreciating real estate market. Talk with us about the role real estate should play in your investment portfolio.