Home Prices Finally Returning to Normal

NEW YORK (CNNMoney)

After years of wild swings, the U.S. housing market is slowly returning to normal.

The latest forecast from Fiserv (FISV) Case-Shiller predicts home prices will increase by an average of 3.3 percent annually over the five years ending Sept. 2017.                                          

Home prices: Biggest winners and losers; These cities will see the biggest swings in home prices through the 12 months ending Sept. 30, according to Fiserv's estimates.

"2012 was the first year since 1997 that the housing market has resembled something [close to] normal," said David Stiff, Fiserv's chief economist. "For the past 15 years, home price changes and sales volumes have either been boosted by a bubble mentality or crushed by crash psychology."                                           

From 1998 until the housing bubble peaked in 2006, home prices grew by 5 percent or more a year. But once the bubble burst, home prices plunged, falling 30.5 percent through the end of September 2012.

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It wasn't until late 2011 that markets started to stabilize, according to Stiff. Between Sept. 2011 and Sept. 2012, average U.S. home prices rose 3.6 percent. By then, 62 percent of the 384 metro areas Fiserv tracks reported rising home prices, up from just 12.5 percent of all markets during the same period a year earlier.                                          

Many of the metro areas hit hardest by the housing bust recorded the biggest price gains during those 12 months. In Phoenix, for example, prices climbed back by nearly 21 percent; prices in Detroit rose almost 16 percent; and homes in San Jose, Calif. gained 12.5 percent.

Values continued to decline on Long Island, N.Y., however, where prices fell 8.1 percent and where Stiff said the turnaround in median income lagged the rest of the nation by about a year. Brunswick, GA, also saw declines, down 7.1 percent, as did Valdosta, GA, off 6.9 percent. Both areas saw jumps in foreclosures.                                          

Home prices: Check your local forecast

By the end of this year, Fiserv predicts that home prices will be heading higher in almost every metro area it tracks. Medford, OR., is expected to gain 9.7 percent in the 12 months through September, the highest of any city. Other big gainers are expected to be Santa Fe, N.M., up 8.1 percent, Billings, MT, 5.5 percent and Syracuse, N.Y., 5 percent.                                          

Fiserv expects Miami home prices to sustain a 10.7 percent loss over the same period, the largest drop of any market. Stiff said a steady stream of foreclosures will keep prices soft in the area during that time.                                          

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While Stiff said home price gains will be similar to those experienced back in 1997, he noted the similarities stopped there.  Currently, millions of homes are either in foreclosure or on the verge of it.                                          

Otherwise, there are many positive trends in today's market, he said. Prices are extremely affordable and mortgage rates are at or near historic lows. Overall, Fiserv Case-Shiller expects stronger demand for housing, and the sector should, once again, have a positive impact on the economy.