US property prices starting to slow

Despite the fact that the US economy is still struggling to pull away from the 2008 mortgage led recession, there was significant demand for property across the US in 2013. This led to some substantial rises in many areas of the US although, as we are seeing in the UK, forecasts for 2014 are little more subdued. There is a growing suspicion that property prices in the US will consolidate in 2014 with significantly lower price rises compared to 2013. Does this mean the end of the US real estate recovery?

There are a number of factors to take into consideration when looking at the US real estate market, in the short, medium and long-term and perhaps the situation is not as dire as some would have you believe.

Affordability factor

There are some experts believe that US property prices were oversold in the aftermath of the 2008 mortgage crisis and 2013 was a natural “catch-up” at the first sign of economic stability. There are also others who believe that US homes are now more affordable than they have been for some time and indeed this suggestion does seem to be borne out by recent data. You may well ask yourself, if houses prices are so affordable why are they forecast to consolidate in 2014?

Quote from PropertyForum.com : “I have been looking at various homes in Atlanta, Athens and Lithonia. You can buy really nice properties for sub $60,000.  Does anyone have any experience in this State and can anyone shed any light on what the rental market is like in these areas of Georgia?”

Increased housing stock

There is no doubt that after the 2008 mortgage crisis many people found themselves in serious financial trouble and indeed negative equity was a common issue. The rise in prices throughout 2013 was significant for many people as it allowed them to put their personal finances on a more stable footing. As a consequence, we have seen an 11.1% increase in the number of homes for sale in January 2014 compared to 12 months previous.

Part of the rise in US real estate prices throughout 2013 can be attributed to a lack of housing stock. As investors began to come round to the idea that the economic crisis was coming to an end, interest in real estate investment began to grow but because there was less housing available we saw some properties bid up to unsustainable levels. The introduction of fresh stock has taken some of the froth off the US real estate market in the short term – which many see as a good sign.

No concerns, no house price bubble

It would be dangerous to suggest with any great confidence that we are not headed towards a house price bubble in the US but recent data, and more importantly the introduction of more housing stock, has taken some of the froth off the sector. The economy is slowly improving, the political situation is more stable than it was last year and while there are still budgetary concerns, these will be addressed in the short to medium term.

Many investors would prefer to see a short to medium-term consolidation of the US real estate market – there is nothing wrong with prices taking a breather and finding their own natural level. Long-term potential for real estate price growth across the US is still very prevalent and with Chinese investors still showing a great appetite for US stock, could the consolidation period be shorter than many might expect?