NEW YORK ( TheStreet) -- Home prices are likely to rise by 6% in 2013 on the back of higher demand, lower distressed sales and low inventory levels, Core Logic projected in its January Market Pulse report released Monday.
"Rising home prices will slowly release the pent-up supply of inventory as under-equitied borrowers are unlocked and opportunistic sellers begin to provide relief to tight inventories," economist Same Khater wrote. " In addition, household formations have increased in the last 18 months, providing a nice base of support for housing demand."
The Core Logic Home Price Index rose 7.5% in 2012, the largest increase since 2006. Total home sales rose 6% to 4.2 million, the first increase since 2005.
Helping the price increase was a decline in foreclosure sales and an improvement in non-distressed sales.Sale of foreclosed homes declined 20% to 600,000, marking a third consecutive decline, as banks pursued other alternatives to foreclosure amid a growing backlog of foreclosure cases in courts. Short sales rose 23% to 370,000. While short-sales are distressed sales, they sell at a lower discount to market prices than foreclosures and therefore, have a less negative impact on home prices overall. Non-distressed home sales increased 11%, amid tight supply, while new home sales increased 3%. Inventory levels were low as potential sellers were locked out of the market. "Many trade-up borrowers have been locked out of the market because their outstanding loan balance is greater than the value of their home," Khater wrote. " Current owners need to sell at prices high enough to extinguish their debt and provide equity for their next home purchase." As prices rise, however, more borrowers might see their equity being restored, allowing them to sell their homes. Mortgage delinquency trends also improved in 2012. Seriously delinquent rate declined to 6.9% from 7.4% in 2011. At the end of November 2012, the number of seriously delinquent loans stood at 2.6 million, down 15% from a year earlier. Declines in delinquent loans have been helped by modifications under the government's HAMP program, and increasingly, due to foreclosure resolutions. "Improvements in the labor market and home prices" are two important factors that would help delinquency rates in 2013, according to the report. -- Written by Shanthi Bharatwaj in New York.