American homes gained nearly $2 trillion in value this year, the largest gain since 2005, according to a new report.
Home prices had a banner year, rising nearly 8 percent growth and nearly doubling last year's increase Seattle real estate information site Zillow reports. That brings the total value of U.S. homes to about $25.7 trillion. Over the past two years, U.S. homes have recovered $2.8 trillion, or about 44 percent, of the $6.3 trillion in value they lost during the Great Recession.
“In 2013, the housing market continued to build on the positive momentum that began in 2012, after the housing market bottomed,” Zillow chief economist Stan Humphries said in a statement. “Low mortgage rates and an improving economy helped bring buyers into the market, boosting demand and driving prices up.”
Next year is unlikely to as strong for housing. Home prices will still go up, but at a slower pace.
“The housing market is transitioning away from the robust
bounce off the bottom we’ve been seeing, toward a more sustainable, healthier
market,” Humphries said.
He predicts home price gains of 3 percent. That’s a pace that many economists are more comfortable with.
Gary Painter, director of research for the University of Southern California-Lusk Center for Real Estate, said that home price growth is returning to historical norms. In the past, real estate prices have typically matched the rate of inflation.
“The only time there really was a deviation from the trend line was in the 2000s, when prices went sky-high and fell down well below the trend line,” he said. “But right now we’re very close to that trend line, and that makes me feel like prices are where they should be."
Although the housing market returning to normal, it is likely to take years for many homeowners to fully recover the value of their homes—if they ever do.
“The only people, and it’s understandable, that want house prices to move up further than that pace are people currently still underwater, and there’s still a significant number, though certainly less than there were two years ago,” Painter said.
About 13 percent of all mortgaged homes—about 6.4 million homes—were still underwater at the end of September, according to CoreLogic. That represents a 38 percent drop from the same time last year, when 10.4 million homes were underwater.
Of the largest 25 metropolitan areas in the U.S., the Orlando, Fla., area has the highest percentage of homes with negative equity, at 32.3 percent. It is followed by the Tampa Bay, Fla., area at 30.1 percent, Phoenix (23.2 percent), Riverside, Calif., (20.8 percent) and Chicago (20.5 percent), according to CoreLogic.
Real estate prices rose in all those metro areas this year, along with 90 percent of the cities in the country, Zillow reported.