Prices in the US property market are predicted to increase by 3 percent over the next year, but according to Zillow, the respected real estate information company, growth will largely depend upon location.
The Zillow Home Value Index is a trusted resource for determining property prices, and the index rose to $169,200 in February 2014, which is up by 5.6 percent over the previous year. In addition, the number of homes listed for sale by Zillow increased by 5.5 percent since last year.
Spring has traditionally been a busy season for home buyers and sellers, but as the season gets underway, investors and others in the market will have very different experiences, especially when it comes to negotiating prices. According to Zillow’s latest analysis of the US property market, sellers on the West Coast will benefit from a tight market and low inventory, giving them the upper hand in price negotiations. However, sellers in the Midwest and on the East Coast will face stiff competition, and buyers should be able to negotiate great bargains on most properties.
For sellers, the most favorable markets are expected to be San Francisco and Los Angeles in California and San Antonio, Texas, while the best markets for buyers should be Cleveland, Ohio; Philadelphia, Pennsylvania; and Tampa, Florida, according to Zillow.
The Zillow analysis is careful to point out that the best market for sellers is not necessarily the one where home prices are increasing. It is often the market where homes stay listed for the shortest amount of time.
When homes stay listed for shorter periods, there are fewer opportunities for price reductions, and most properties end up selling at prices very close to or even higher than the prices at which they were listed. However, the reverse is true for buyers’ markets. When properties stay listed for long periods, price reductions are more common, and the sales prices are very rarely in the same range as the listing prices.
The chief economist for Zillow, Stan Humphries, commented on the differences in the markets on the East Coast and the West Coast. “Relatively strong job markets in the West are helping spur robust demand, which is being met with limited supply, causing rapid home value appreciation and giving sellers an edge,” Humphreys said. “In the East, housing markets are appreciating a bit more slowly, and homes are staying on the market longer, which helps give buyers the upper hand.”
Humphries continued by stating, “As we put the housing recession further in the rearview mirror, the broad-based dynamics that applied during those days, when all markets were reacting similarly to nationwide economic conditions, are fading. Real estate has always been local, and as the spring market gains momentum, this old adage will only become more pronounced.”
The Zillow report and Humphries also stated that appreciation of prices in the US property market has slowed considerably on both the monthly and annual scales. From January 2014 to February 2014, prices remained relatively stable but were up by 5.6 percent over the previous year. An increase in inventory in most of the nation’s property markets has tempered the growth of home values. As the supply has increased, prices have leveled but are once again on the rise. Zillow predicts that home values will rise by 3 percent from February 2014 to February 2015 to just over $174,000. However, in other good news for investors, rent prices are also increasing. From January to February, median rent rose by 0.2 percent to $1,310, which is an increase of 2.8 percent over last year.
Zillow is also predicting long-term growth in the domestic property market. According to the company’s Home Price Expectations Survey, a panel of 110 economic forecasters predicts that prices will appreciate steadily through 2018. Many of the panelists have said that the market is supported by investors and that an increase in investment activity would be welcome in the next three to five years.
“Buyers entering the market in the next few months will not be competing with cash-rich investors like they were last year, which should be some small solace given the higher prices and mortgage rates that they will encounter,” said Humphreys. “The gradual decline of investor activity should be viewed as another sign of the market slowly returning to normal, and I agree with the panel’s expectations that there will not be a rush for the exit by institutional investors.”