Home prices rose over past year, another sign that market is recovering
Home prices saw solid gains over the past year, according to a new report Wednesday, adding to the evidence that the housing market turned a corner in 2012, even in the hardest-hit parts of the country.
Nationally, home prices rose 4.3 percent in the 12 months ending in October, a rate that surpassed analysts’ expectations, according to Standard & Poor’s Case-Shiller home-price indexes.
“It is clear that the housing recovery is gathering strength,” said David M. Blitzer, chairman of the index committee at S&P Dow Jones Indices.
In the Washington area, where the housing downturn was generally less damaging than in most of the country, prices were up 4.4 percent. But the progress was uneven: Many of the homeowners with mortgages higher than their home’s value were clustered in the eastern parts of the District and in Prince George’s County, areas that saw sharp price increases during the housing boom but have experienced a slow recovery since the bust.
Still, much of the country is recovering from the downturn, although prices remain about 30 percent below their mid-2006 peaks.
Home prices in Detroit were up 10 percent in the past year, but they remained 20 percent below 2000 levels. In Phoenix, where investors have brought new life to a market flooded with foreclosed houses and other distressed properties, prices were up 21.7 percent. In Miami, prices rose 8.5 percent over the past year, and they were up 8.4 percent in the Las Vegas area.
The only housing markets tracked by the index that showed price declines were Chicago and New York City, each down by just over 1 percent in the year ending in October.
The price increases in much of the country build on other data showing a sharp rise in new construction, a decline in once-swollen inventories and a decrease in foreclosures. Taken together, the reports have led analysts to conclude that after years of being an economic drag, housing is now contributing to economic growth.
“I have no doubt that we have turned the corner,” said Dean Baker, co-director of the Center for Economic and Policy Research, who closely tracks the housing market. “I would be surprised if we see any sustained price decreases in the near future. What we can expect is to see modest price appreciation, something in the neighborhood of 4 percent for the next several years.”
That comes as welcome news after sales were stuck near historic lows in the five years after the real estate bubble burst in 2006. Initially, the slowdown was explained as a necessary adjustment following the overbuilding that accompanied the housing boom. But the poor housing market persisted as the weak job market discouraged people from looking for homes. At the same time, mortgage lenders significantly tightened credit.
But analysts think that cycle is reversing. Not only is there pent-up demand for new housing, they believe, but rock-bottom interest rates and slowly loosening credit standards also point to a better housing market, which would boost the economy.
“I think this is real. The crash is over, and we’re off and running,” said Mark Zandi, chief economist for Moody’s Analytics. “It may not be a straight line, but for the most part housing conditions” should be on the upswing for the next three or four years.
Still, no one is predicting — nor do analysts desire — a return to the boom times that came before the crash. Inventories of foreclosed and other distressed properties, while declining, are still far above historic norms. Those properties will moderate overall prices as they make their way onto the market.
Also, some economists worry that the sharp price increases in once-devastated markets such as Phoenix and Las Vegas are a result of rampant speculation. They warn that investment activity may be inflating prices, particularly at the lower end of the market. If that is true, some areas could see short periods of flat prices or even declines in the near future, even if the longer-term trend is toward higher home values.
“What we are seeing is a lot of speculation” in some places, Baker said. “What is likely happening is that investors are coming in buying ahead of demand, even as vacancy rates are rising. It is exactly what happened during the bubble.”