Kicking off a panel of economists addressing a gathering of journalists, Lawrence Yun of the National Assn. of Realtors said he expected a multiyear recovery as home price growth lifts more owners out of underwater situations and helps the economy.
"Housing wealth is easily offsetting the negative effect of sequestration," Yun told the National Assn. of Real Estate Editors. But the normally housing bullish economist tempered his optimism because double-digit increases in home prices are outpacing income growth. "Any time that happens over a sustained period it is an unhealthy state for the country."
Four of the next five years should see continued price growth, Yun said. "We will still be shy of pre-bubble years."
Having fewer underwater homeowners will increase the number of homes on the market, said Mark Fleming, chief economist for CoreLogic. Low inventory is a problem that remains prevalent in the areas that were hardest hit during the housing downturn, he said. "There's no point in selling if I can't buy a home" is the attitude of many homeowners, he said.
On the current path, home prices, sales and construction should continue upward, said economist Jed Kolko of Trulia. Meanwhile, vacancies, delinquencies and foreclosures will be dropping. "Inventories may be down too as a necessary part of the housing recovery."
Homes are still undervalued relative to rent, Kolko said, and a full housing recovery is a few years away.
Currently there are no signs of over-building and little sign of over-borrowing, he said. "Prices would have to rise at current rate for several years to return to bubble territory."
Tempering that possibility will be rising mortgage rates, fading investor interest and more homes coming on the market.
Could higher interest rates dampen the recovery?
"Even if rates go up to 5.5%, it won't kill demand," Kolko said. "It will still be cheaper to buy than to rent."
Instead, his concerns include tight mortgage credit, slow demand for houses from young people due to employment issues and regulations slowing construction.
Institutional investors are already losing interest in real estate as bargains become fewer and rent increases have slowed. But they have played a vital role, he said. "Without investors this recovery would have been a lot worse."