After an Era of Ups and Downs, Home Prices Return to Sanity

A wide range of measures indicate that U.S. home prices have returned to normal in comparison to incomes, rents, and other fundamentals and are increasing at low, single-digit rates. Moreover, buyers appear to be unwilling to spend more than they can afford based on income and savings; and they are not making quick decisions based on assumptions that prices will rise or fall. “The market is coming back, but we’re not having astronomical growth,” says Greater Tampa Association of Realtors CEO Thomas O’Bryant Jr. “We’re having the kind of growth that is going to be sustainable, and any time you have steady growth it’s much better than having bubble growth.” As prices recover, investors are leaving the market, and buyers looking for a place to live are returning. However, Brenna Eddins, an agent at Seven Oaks Realty in Pasco County, says, “I’m seeing younger buyers being more cautious and approaching this as a longer-term investment. I don’t see a mind-set of ‘We’ll be here a couple of years and we’ll flip it.'” Experts say there are some risks given that today’s relatively balanced home prices are dependent on mortgage rates hovering near record lows, with Bank of America-Merrill Lynch’s deputy head of U.S. economics Michelle Meyer noting that a sharp rise in rates could result in a significant drop in housing affordability. However, she says the housing market could absorb any hit from rising rates if the increase is due to stronger economic growth. | Read More