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      Near-Record Rise in National Home Prices Should Cool Down

      As reflected in the near-record national rise in home prices, Boston area homeowners as a whole had much to cheer about in 2014. According to the S&P Case-Shiller Index, home prices increased 13.6% from October 2012—and in fact, they’ve been improving at a faster annual rate in each month for almost two years!

      Every expert I researched agreed that this rate of increase won’t (and, for the health of the market, shouldn’t) continue at that gravity-defying pace in 2015. Most of them do predict higher interest rates with a slower (but steady) rise in home prices. Adding to the overall optimism is a RealtyTrac report that showed foreclosure filings last year weighing in with the lowest annual number in 7 years. That’s that: the recovery is happening! 

      Some potential homebuyers have been reluctant to enter the market at all due to memories of the last decade’s real estate bust. Their fears may be dissipated if Dow Jones Index Chief David Blitzer’s analysis is heeded. The economist has shown that the previous market price top was accompanied by a 60% loan-to-value ratio: a speculative bubble in home prices. Today, loan-to-value has shrunk to less than 50%: not even close to “bubble” territory.

      Boston area home prices might get a boost from another quarter, too, as prospective buyers realize how expensive their hesitation has become. According to website Trulia, the cost of home ownership was 35% cheaper than renting—at least in major cities. And even despite rising prices and interest rates, homeownership should continue to be more affordable than renting throughout 2015.

      While lending criteria are expected to loosen in 2015, it’s likely that many first-time home buyers will continue to find it difficult to enter the market. So existing homeowners should be even more important participants in 2015. Having enjoyed large gains in 2014 (and having already surmounted the down payment hurdle), this group is expected to dominate among homebuyers.

      If you are watching area home prices with a view to buying or selling, I hope you will contact us to go over the numbers that are relevant to you.  617-536-8000.

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