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Despite Slower Home Sales, Mortgage Demand Is Rising

Home sales declined in March, but demand for mortgage credit increased, according to the ""US Housing Market Monthly"" from ""Capital Economics."":https://www.capitaleconomics.com/ The report maintains an overall positive outlook on the market despite the small decline in March sales and quashes any concerns of another bubble forming.

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Total home sales decreased 0.4 percent over the month of March, according to the firm's analysis, and the homeownership rate ""fell"":https://themreport.com/articles/homeownership-rate-drops-to-8-year-low-2013-04-30 to 65 percent. Capital Economics expects a further decline in homeownership to 64 percent ""within a year or so,"" but investors will continue to contribute to a housing recovery.

Despite these declines, the Fed ""reported"":http://www.federalreserve.gov/boarddocs/snloansurvey/201305/default.htm an increase in home purchase applications in April, and credit ""loosened a touch,"" the report stated.

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Meanwhile, homes remain undervalued, despite rising prices, and it will likely be a few years before prices rise to fair market value, according to Capital Economics.

Tight inventory continues to contribute to rising prices. The 4.9 month's supply reported in March, up from 4.7 months' supply in January, remains far below the 7-month norm. ""At the current rate of increase, it will be several years before supply conditions look normal,"" Capital Economics stated in its report.

The tight supply should contribute to price increases of about 10 percent year-over-year in coming months.

With current prices 5 percent undervalued compared to current rents and 20 percent below fair value compared to income per capita, ""concerns that a bubble is forming in US house prices are premature,"" Capital Economics stated.

In fact, Capital Economics calculated with a 10 percent annual price gain with a 4 percent annual income gain, ""it will take until 2017 for housing to return to fair value.""

States with significant price gains are generally the same states with strong labor markets, according to Capital Economics. Florida, California, and Washington D.C., are all experiencing labor and price rebounds. However, Capital Economics warns the D.C. market may soon be affected by government cutbacks.

Home builders face constraints related to building materials, labor, and land, but Capital Economics still forecasts increased activity moving forward.

About Author: Krista Franks Brock

Krista Franks Brock is a professional writer and editor who has covered the mortgage banking and default servicing sectors since 2011. Previously, she served as managing editor of DS News and Southern Distinction, a regional lifestyle publication. Her work has appeared in a variety of print and online publications, including Consumers Digest, Dallas Style and Design, DS News and DSNews.com, MReport and theMReport.com. She holds degrees in journalism and art from the University of Georgia.
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