No consensus on where home prices headed
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In the past few months, Twin Cities home prices have jumped as much as 16 percent over the same period last year. If recent patterns hold, a report out Wednesday morning will likely show Twin Cities home prices continued to rise in March. But real estate experts and professionals disagree on how long prices will continue to rise so sharply.
"I think it's going to do that same thing until we get up to within about 90 percent of where the prices were back in the boom," said real estate investor Dan Grohs.
Over the past 35 years, Grohs has bought and sold hundreds of Twin Cities homes. Because of what's happening with the supply of housing, he's convinced that the recent trend of double-digit annual price gains is sustainable.
The supply of homes for sale in the Twin Cities is at its lowest point since 2004. The flow of foreclosed properties is dwindling. And homeowners who bought at the peak of the market may still be underwater and reluctant to sell at a loss.
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As result, Grohs and many realtors report multiple offers and bidding wars on homes. That makes Grohs eager to list some properties he had been renting out.
"The supply is just not there and the demand is there with the low interest rates. I just think right now is the time to go for me," Grohs said. "I don't believe the market will level off. I think it's going to keep going up."
Quinn Eddins disagrees. He's director of research at Radar Logic, a firm that monitors home prices. Eddins said it is unlikely that price growth will follow a straight line up.
"I don't believe the market will level off. I think it's going to keep going up."
That's partly because of what he thinks will happen with supply, particularly the "shadow inventory." The term refers to homes that will likely wind up for sale in the foreseeable future.
Eddins does not expect a tsunami of foreclosure to come on to the market, but he notes that foreclosure rates are still high. And those foreclosures will continue to feed housing inventory.
In addition, Eddins says that as prices rise, homeowners who have been underwater will be enticed to sell, which will also goose supply.
Once that happens, supply will catch up with demand and price gains will moderate, Eddins said.
"And while you will see some price increases, I don't think 2013 is going to be another 2012," he said.
Sharing that view is Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis. At a recent press event, Kocherlakota said he does not expect a reversal of the price improvements. But he doubts prices will climb steeply this year. That said, he noted that prices are notoriously hard to predict.
"Prices are determined by the mix of demand and supply. Actually forecasting where those are going over the course of a given year is very challenging," Kocherlakota said.
No matter how you frame it, the recovery will still take time. If prices continue to rise at recent rates, it would probably still take years to return to the peak seen in the last housing boom. That peak came in the middle of a housing bubble, so a full return to those price levels in the near future may not even be possible -- or even desirable.
