U.S. home prices rises to slow to single digit this year - Reuters poll

Reuters
People walk near new single family homes under construction in San Marcos
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People walk near new single family homes under construction in San Marcos, California October 25, 2013. …

By Margaret Chadbourn

WASHINGTON (Reuters) - U.S. home price inflation will slow to less than 7 percent this year as mortgage rates rise and there is a gradual transition away from a market driven by institutional buyers looking for bargains, a Reuters poll found.

But a shortage of homes for sale as well as a severely cold and stormy winter across much of the United States forcing a sharp pullback in housing starts this year is not expected to squeeze prices of existing homes aggressively higher.

Indeed, only four of 23 economists surveyed by Reuters this week said the market would rise by double digits this year. The consensus view for the S&P/Case-Shiller composite index of 20 metropolitan areas is for a 6.7 percent rise.

That's a little over half the speed of last year's 12 percent rise and about where the consensus was pointing three months ago.

The stock market crash in 2000 led to a shift into U.S. housing from stocks, fuelling a bubble which in 2007 led to the collapse of the housing market.

After a trough in 2011 house prices rose in double digits last year but that will probably be the fastest rate for at least another three years, according to the poll.

The biggest risk analysts cite is the Federal Reserve raising interest rates from near-zero earlier or more quickly than anticipated. Currently expectations are for a rate rise sometime in the third quarter of next year.

Mortgage rates have already risen by almost a percentage point in the past year, making it more expensive for anyone looking to buy a new house. Taken together with a job market that has yet to truly recover, household finances are still stretched.

"We see a disconnect between income and rising mortgage rates weighing on the housing market," said Peter Cardillo, chief market economist at Rockwell Global Capital.

Mortgage rates will likely average 4.58 percent this year, according to the poll, barely changed from the consensus forecast of 4.61 percent made in November.

They are expected to average 5.76 percent in 2016, just a tad below the 6.0 percent they averaged during the housing market peak in 2004.

Respondents also say the housing market is in transition away from a marketplace driven by investors snapping up distressed properties, handing over to first-time buyers and those looking to sell and trade up for larger homes.

Home sales dropped 5.1 percent in January to an annualized rate of 4.62 million units, an 18-month low. But that pace is expected to pick up again to 5.30 million by the fourth quarter of this year.

A shortage of new homes, however, will underpin the market and keep prices rising.

"There remains a shortage of new housing which will cause housing prices to remain firm into 2016," said economist Donald Ratajczak.

(Polling and analysis by Hari Kishan and Anu Bararia; Editing by Ross Finley and Chizu Nomiyama)

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