NEW YORK--(BUSINESS WIRE)--U.S. home prices and interest rates are on the rise, but a healthy increase in housing metrics is still expected through this year with a further improvement in 2014, according to Fitch Ratings. As we have noted previously, recovery in the housing market will likely occur in fits and starts and housing absolute numbers are still low relative to past cycles. Expansion should not be expected as a total slope upward, as there are a number of variables that intervene.
U.S. home prices are up 12.4% year-over-year and at their highest levels since February 2006, according to the most recent S&P/Case-Shiller data, although monthly rates of price gains have declined. Concern about future higher rates has been on homebuyers' minds since May, when speculation that the U.S. Federal Reserve would soon begin its tapering process cooled the housing market.
We continue to believe the housing recovery should advance this year and next with a continued, below trend line, cyclical rise off a very low bottom. In a slowly growing economy with somewhat diminished distressed home sales competition, less competitive rental cost alternatives, local permitting delays, labor imbalances, developed lots less readily available, and new home inventories near historically low levels, 2013 single-family starts should improve about 17.0%, while new home sales increase 20.0% and existing home sales grow 8.5%. Multifamily starts should expand almost 20.0%.
Thirty-year mortgage rates have risen about 100 basis points from early May, but are still low by historical standards and affordability in total is still attractive. While borrowing rates may somewhat decrease the customer base, we believe stronger demand will be evident in trade-up housing where that buyer is better positioned financially to absorb both higher home prices and increased interest rates.
Realized demand will continue to be affected by some narrowing of affordability, relatively widespread negative equity, challenging mortgage qualification standards, and excess supply due to foreclosures in certain markets.
The shortage of developed lots for new construction continues to place pressure on builders, coupled with a rising material and labor costs. However, we believe this is not prominent nationally and subject to specific markets including but not limited to coastal California and some parts of Florida.
Additional information is available on www.fitchratings.com.
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