Barclays Issues Housing Forecast

Barclays forecasts U.S. housing prices to rise by 11.0 percent in 2013 and 7.0 percent in 2014, based on data through the second quarter. Prices are up 7.6 percent and 7.2 percent this year through June, seasonally adjusted for the CoreLogic aggregate and distressed-excluded indices, respectively, according to Barclays’ Q3 Regional Housing Update.

Barclays expects the percentage of distressed real estate to fall most dramatically in Florida in the coming years, from it’s current share of 10.5 percent of the market to 4.3 percent by 2017.

The report anticipates the nationwide distressed property segment to fall from its current 3.8 percent to 2.2 percent by 2017. In the nearer term, Barclays expects distressed inventory to grow slightly in Arizona, California, New York, Ohio, and Texas in 2014. Distressed inventory is anticipated to fall slightly in Florida, Michigan, and Nevada next year.

The report noted that mortgage rates increased by 100 basis points between May and July of 1013. Barclay’s expressed concern that higher mortgage rates, especially in large, desirable cities, could decrease demand and thereby affect Home Price Appreciation (HPA). “Supply in most parts of the U.S. is elastic enough over the medium run to counter changes in demand due to changes in rates.

As such, even if home prices move a little bit in the near term to adjust for changes in, affordability, the effect is mostly absent over the medium term,” Barclays said in a second, related report. “However, this is not true in areas where supply is less elastic due to land constraints or regulations on new development. In those areas, we estimate that home prices decline by roughly 5-10 percent, cumulatively, for every 100bp increase in rates compared with if rates had stayed unchanged.