HOUSING OUTLOOK - A BEAR MARKET?

Since 2011, home prices have gained in the double digits, making a price plateau inevitable. But are we really entering a bear housing market? Not if we look at long-term fundamentals.

Rising prices allowed distressed properties to sell, allowing the nation to work through huge oversupplies. Investors were on board until prices returned to normal in many markets.

Case-Shiller economist Dr. David Stiff explains, "Non-investor demand, although increasing, will not replace demand from investors."

Since housing is far more affordable now than it was in 2006, there is less concern that a new housing bubble will occur, Stiff said in a recent statement.

Consider this. As of Q3 2013, the ratio of the median monthly mortgage payment to the median monthly family income was 35 percent lower than it was in Q1 2006 - a 40-year low.

Affordability comes strongly into play when inflation is taken into consideration. It's said that historically, home values beat inflation by approximately one to two percent annually.

In the last ten years, inflation has grown by about 2.4 percent annually, while home prices lost nearly half their value. During the housing recovery, double-digit home price increases handily beat tepid inflation.

According to the U.S. Labor Department, inflation rose 1.5 percent in 2013, while home prices were up 11 percent, says CoreLogic.

In Q3 2013, home prices were 17 percent above the lows reached in Q4 2011 and 23 percent below the peaks reached in Q1 2006. Price appreciation is expected to throttle back to 4.2 percent in 2014, according to CoreLogic's Case-Shiller Index.

While it appears a bear market for housing could be forming, prices are still gaining close to the long-term average of 4.5% since 1975.

As for inflation? Kiplinger's predicts a 2.7 percent gain for 2014, making housing an excellent hedge.