Suzanne Baker and her siblings bought a foreclosed home in Atlanta two years ago, added a fourth bathroom, then waited for values to rebound before considering a sale. Now, she says, they’re ready to cash in.
The family last month listed the four-bedroom house in the affluent Buckhead neighborhood for $710,000. It was purchased as an investment for about $375,000 in late 2011, before bulk buyers snapped up many of the area’s distressed homes, helping to drive up prices in Atlanta by more than 25 percent.
“The market is back up,” Baker said. “We think we can make a good amount of profit so we’re going to try.”
For two years, a shortage of sellers like the Bakers has propped up prices across the U.S. as shoppers jostled for a dwindling supply of houses. Now, as the market’s busiest season approaches, escalating values are spurring more listings as homeowners regain equity lost in the worst crash since the 1930s. While new-home construction at a third of its 2006 peak will keep inventory tight, the supply increase is poised to damp price gains while higher mortgage rates cut into demand.
For would-be buyers, more choice would mean relief from the bidding wars of last year, when the supply was at a 12-year low leading into the key spring season. The period traditionally starts in mid-February, with deals picking up in the following months as weather in much of the country starts to warm.
Prices “won’t be rising as much as they were rising last spring.” said Jed Kolko, chief economist of San Francisco-based Trulia Inc., operator of an online property-listing service. “It will be a less frantic market with more inventory and fewer investors.”
“Rising inventory is the primary reason that we expect the pace of price gains to drop back,” Paul Diggle, property economist for Capital Economics Ltd. in London, said in a telephone interview.
Prices nationwide will climb 4 percent this year compared to 2013’s expected 11 percent gain, according to Diggle. Increasing mortgage rates also will weigh on prices because the higher costs will push some buyers out of the market, while forcing others to look for cheaper deals, he said.
Diggle’s firm projects 30-year fixed mortgage rates of 5 percent by the end of the year. That compares with the average this week of 4.23 percent, according to data from Freddie Mac. Rates will climb as the Federal Reserve scales back bond purchases that have bolstered the housing recovery by holding borrowing costs down, he said.
“Buyer enthusiasm has really softened in the past three months,” said Lawrence Yun, the Realtors group’s chief economist, who said colder-than-normal weather may be partly to blame. “In some markets, prices may rise further and buyers will want to catch it” before the increases put them out of their budget.
Sellers are “nervous about what the spring is going to bring,” said Reid, who is based in Temecula, California. “They don’t know if everybody will list this spring then you’ll have a big counterbalance toward too much inventory, or if there’ll be a crunch again. They figure they’ll get out ahead of the market, list, sell and be done with it.”