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Why last year's home price gains will bring the consumer back in 2014

Morgan Korn

Existing home sales rose 1% to a seasonally adjusted annual rate of 4.87 million in December, the National Association of Realtors reported Thursday. For 2013, existing home sales totaled 5.09 million, a 9% increase over 2012 and the best showing in seven years.

Michelle Meyer, senior U.S. economist at Bank of America Merrill Lynch (BAC), says housing will "still be a positive story for the economy this year." Investors and home sellers, however, should not expect the same rapid price appreciation that bouyed the market in 2013.

"We're on track for over 10% year-over-year appreciation, and that's not the norm," she explains in the video above. "Tight credit for new buyers is a main reason we should expect a slowdown in price appreciation."

Related: How the Job Market is Killing Housing

The national median existing-home price was $197,100 last year, 11.5% higher than the 2012 median of $176,800, according to the National Association of Realtors. That's the largest gain since 2005, when home prices rose 12.4%.

[Click here to check home loan rates in your area.]

Related: Home sellers and buyers listen up: Home sales & price gains are slowing

"There was a lot of investor appetite for housing last year, which was part of the reason for the rise in prices," Meyer notes, but demand from these investors has fallen and "a transition to first-time home buyers is needed." 

Higher home prices will also boost consumer spending this year, Meyer says. Gains in home values and stock investments over the past year have increased household wealth for many Americans, and consumers "now have to believe the gains in wealth are permanent," she maintains. "They have to react and change their consumption patterns."

Related: 4 people who earn six figures and still feel broke

U.S. consumer spending climbed 0.2% in December after rising 0.4% in November. Consumer spending accounts for 70% of economic growth.

Meyer expects the economy to grow 3% this year. Moody's Analytics estimates that the econony will expand 3.2% in 2014.

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