Home listings will climb as more sellers seek to cash in

Suzanne Baker and her siblings bought a foreclosed home in Atlanta two years ago, added a fourth bathroom, then waited for values to rebound before considering a sale. Now, she says, they're ready to cash in.

The family last month listed the four-bedroom house in the affluent Buckhead neighborhood for $710,000. It was purchased as an investment for about $375,000 in late 2011.

"The market is back up," Baker said. "We think we can make a good amount of profit, so we're going to try."

For two years, a shortage of sellers like the Bakers has propped up prices across the country as shoppers jostled for a dwindling supply of houses. Now, as the market's busiest season approaches, escalating values are spurring more listings as homeowners regain equity lost in the worst crash since the 1930s.

While new-home construction, at a third of its 2006 peak, will keep inventory tight, the supply increase is poised to damp price gains while higher mortgage rates cut into demand.

For would-be buyers, more choice would mean relief from the bidding wars of 2013, when the supply was at a 12-year low leading into the key spring season. The period traditionally starts in mid-February, with deals picking up as the weather starts to warm.

Prices "won't be rising as much as they were rising last spring." said Jed Kolko, chief economist of San Francisco-based Trulia Inc., operator of an online property-listing service. "It will be a less frantic market with more inventory and fewer investors."

The number of available homes climbed on a year-over-year basis in each of the last four months of 2013 after 30 straight declines, according to the National Association of Realtors. The increase in December was 1.6 percent.

The supply rose 35 percent in the Minneapolis-St. Paul area in December, according to Realtor.com, the property-listings website for the Realtors association.

"Rising inventory is the primary reason that we expect the pace of price gains to drop back," Paul Diggle, property economist for Capital Economics in London. Increasing mortgage rates will also push some buyers out of the market, while forcing others to look for cheaper deals, he said.

Diggle's firm projects 30-year fixed mortgage rates of 5 percent by the end of the year. That compares with the average this week of 4.23 percent, according to data from Freddie Mac. A jump from near-record lows in May has contributed to cooling demand. In December, contracts to buy previously owned houses fell by the most since May 2010, data from the National Association of Realtors show. Completed purchases rose 1 percent from November for the first gain in five months.

"Buyer enthusiasm has really softened in the past three months," said Lawrence Yun, the Realtors group's chief economist, who said colder-than-normal weather may be partly to blame.

Sellers are "nervous about what the spring is going to bring," said Paul Reid, an agent with brokerage Redfin who is based in Temecula, Calif. "They don't know if everybody will list this spring then you'll have a big counterbalance toward too much inventory, or if there'll be a crunch again. They figure they'll get out ahead of the market, list, sell and be done with it."

Adjustable-rate mortgages, used by first-time buyers in past decades to purchase more expensive properties, may not be an option because of stricter lending standards adopted after the housing crash, said Sam Khater, senior economist for CoreLogic Inc.

"More supply will not create its own demand," Khater said. "It will slow prices to a more sustainable rate of growth, but it won't make the market more affordable. Once prices reach their natural state, future price appreciation will depend on income increases."

For homebuilders, the spring selling season traditionally starts the weekend after the Super Bowl. Companies are stepping up production, adding to the options for buyers. New-home starts, which rose 15 percent in 2013, will jump 25 percent this year, according to Brad Hunter, chief economist of Metrostudy, a research firm that tracks construction.

"It's going to be a good season for homebuilders, maybe just not as good as last season," Hunter said. "There are more projects operating this year than last year so it's a more competitive environment."

PulteGroup Inc. and D.R. Horton Inc., the second- and third-largest U.S. homebuilders by market value, said January sales were encouraging.