Home prices in the U.S. rose 4.3% in the 12 months between October 2011 and October 2012 according to the S& P/Case Shiller Home Price Index released December 26th. This increase surpassed predictions and provided evidence that the housing recovery is real. The collapse of the housing industry was one of the major casualties of the Bush Recession and it was a major drag on the recovery.
“The housing market is definitely starting to recover,” Ryan Wang, an economist with HSBC Securities USA Inc. in New York told Bloomberg News. Higher property values have “added about a trillion dollars to household wealth just since the beginning of this year.” The boost to household net worth “will provide an important benefit for consumers and for the broader economy,” Wang said.
“Housing contributed 10 percent to the overall U.S. economic growth in the third quarter, David Blitzer of S&P/Case Shiller said in a statement, “but the housing sector represented less than 3 percent of gross domestic product,” he added. Last week, the Commerce Department said U.S. GDP expanded at a stronger-than-expected 3.1 percent annualized pace in the third quarter.
This was the 5th straight month that year to year housing prices have risen. The improvement in housing market fundamentals has helped to lift the pace of both home sales and home building. But even with the latest rise in prices, the index is still down 29% from the peak reached in June 2006 according to CNN Money. However since the onset of the recession over half of the lost value in home prices has been recovered according to the index.
The index also reported that the 10- and 20- City Composites recorded respective annual returns of +3.4% and +4.3% in October 2012 which was larger than the +2.1% and +3.0% annual rates posted for September 2012. In nineteen of the 20 cities, annual returns in October were higher than September. Chicago and New York were the only two cities with negative annual returns in October. Phoenix home prices rose for the 13th month in a row. San Diego was second best with nine consecutive monthly gains.
The cities that have experienced the highest rebound in home prices over the last year were: Phoenix (+21.7%), Detroit (+10%), Minneapolis (9.2%), San Francisco (+8.9%), Miami (+8.5%), Las Vegas (+.4%), and Denver (+6.9%).
The cities with the lowest increase other than New York and Chicago which saw a decrease were: Boston (+1.6%), Cleveland (+1.8%), Charlotte (+4.1%), Washington (+4.4%), Dallas (+4.6%), and Atlanta (+4.9%). Other cities fell in between.
The housing recovery is due in part to low interest rates, in part to an improving economy, and falling unemployment rates. Low prices have made housing more affordable to many Americans who were squeezed out by the high prices before the bubble collapsed. Since the market was down so long, there is a pent-up demand, and that is helping home sales and thus rising prices.
The fiscal cliff debacle, however, could reverse this trend if everyone gets a tax increase and a smaller paycheck in January, if the stock market falls wiping out wealth, and if consumer confidence drops. It is appearing more likely that a deal will not be reached in dysfunctional Washington DC. So it remains to be seen is the October numbers will signal a high point, or part of an upward trend. It is up to Congress.
Meanwhile, increased home values mean more families are recovering the net worth they lost in the Recession and that is a good thing.
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