Report: Low Supply Points to Price Increases of 5-10% in 2013

The low supply of housing stock recently reported is giving ""Capital Economics"":http://www.capitaleconomics.com/ reason to believe home price forecasts under 5 percent are actually conservative estimates.

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Realtors in December expected prices to rise by about 3.5 percent over the next year, while consumer estimates were more modest at 2.5 percent for the same time period, the analytics firm noted in its monthly housing report. The estimates show a growing optimism among those groups.

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For example, in March 2012, Realtors expected prices to rise by about 2.5 percent and consumers projected a 1 percent increase, according to a chart in the report.

But, with the low supply of inventory, Capital Economics anticipates much bigger gains. Recently, the National Association of Realtors ""reported"":http://dsnews.comarticles/existing-home-sales-dip-in-december-prices-rise-2013-01-22 existing home sales in December fell to a 4.4 month supply, the lowest level since May 2005, while the ""new home sales report"":http://dsnews.comarticles/dec-new-home-sales-fall-sharply-2013-01-25 from the Census Bureau/HUD says there is a 4.9 month supply of homes for sale.

""At face value, the 4.9 the months' supply of unsold stock currently on the market in December points to house prices rising by as much as 10% y/y. For now, our forecast is for a 5% rise during 2013,"" wrote Paul Diggle in the report.

The tightening in supply is not expected to continue, however. Capital Economics says it expects to see a rebound in housing starts and for the number of willing sellers to rise, which means inventory will hit a bottom soon.

The firm also noted the three major house prices indices-- ""Case-Shiller"":http://dsnews.comarticles/case-shiller-index-shows-sharp-year-year-gain-in-november-2013-01-29, ""FHFA"":http://dsnews.comarticles/fhfa-monthly-yearly-price-gains-continue-into-november-2013-01-23, and ""CoreLogic"":http://dsnews.comarticles/corelogic-home-prices-in-november-reach-6-year-high-2013-01-15 --posted yearly price gains at around 5 percent and as high as 7.4 percent in November.