According to Zillow’s second quarter Real Estate Market Report, the spring of 2013 was representative of the best selling season since 2004. Home prices increased 2.4 percent from the first quarter of 2013 to the second quarter of 2013, peaking at $161,100. Those numbers identify the largest annual improvement in the housing sector since August 2006. It was also the largest quarterly gain since the final quarter of 2005.
Trending home prices are indicative of a nationwide housing sector recovery. Even previously distressed neighborhoods experienced large-scale appreciation. Atlanta, Chicago and St. Louis demonstrated a propensity for quicker than average price gains. The recovery of the entire economy can be attributed to the improvement of cities like these.
All of the top 30 largest metro areas covered by Zillow’s Real Estate Market Report experienced annual price increases by the end of the second quarter. Perhaps more importantly, each of the individual markets have already hit their bottom and show signs of recovery.
The recent Zillow Home Value Forecast (ZHVF) has provided additional encouragement, as national home values are expected to increase five percent over the next year. Of the 257 markets covered by the ZHVF, 241 are predicted to see increases in their home values. Sacramento is expected to be the beneficiary of the largest increase at 18.9 percent, with Riverside metro just behind at 16.6 percent. In fact, many California markets are at the top of the list, suggesting home prices in the region will demonstrate increased appreciation.
While the housing recovery continues to show strong signs, the current trend is not expected to last. Expectations should be tempered, as increasing prices are removing investors and regular buyers are beginning to return to their standard roles. This return to normalcy, in addition to improved inventory supplies, should contribute to decreased appreciation rates.
Those markets experiencing above average increases are witnessing rapid home value increases in conjunction with rising mortgage rates. Should this continue, it will lead to housing prices and financing costs outpacing local income growth, further moderating the market.
The U.S. housing sector as a whole is not currently at risk of experiencing another bubble, but several locations may resemble the conditions of 2007. Some markets (Sacramento, Las Vegas, San Francisco) are experiencing annual home value appreciation approaching 30 percent.