U.S. home price index reaches highest level in almost 2 years
WASHINGTON — Home prices in the nation’s biggest cities have risen to their highest level in nearly two years, according to the housing market’s leading index, indicating that a strong summer selling season has helped put real estate on its most stable ground since crashing five years ago.
The Standard & Poor’s/Case-Shiller index of home values in the 20 largest U.S. cities showed prices rose 1.6% in July from the prior month and 1.2% from July 2011. It was the fourth consecutive monthly improvement, helping cement confidence that the real estate slump is over.
“The news on home prices in this report confirm recent good news about housing. Single family housing starts are well ahead of last year’s pace, existing home sales are up, the inventory of homes for sale is down and foreclosure activity is slowing,” said David M. Blitzer, chairman of the index committee at S&P Dow Jones Indices.
Housing has snapped back this year even as the broader economy and the nation’s employment situation have proved lackluster.
Cash-rich buyers, including private equity investors and big hedge funds, have been scooping up cheaper homes in the nation’s hardest-hit areas. Rock-bottom interest rates and low prices have enticed many other buyers as rents have climbed. And the pace of new foreclosed properties has slowed despite dire warnings that a flood of bank-owned properties would hit the market this year.
The result is a lack of inventory that has led to more buyers chasing fewer properties, and attractive properties in competitive markets being scooped up in a matter of days.
Rising home prices will help those who have mortgage balances exceeding the value of their homes. The number of such underwater borrowers has fallen dramatically this year with the improvement in home prices, meaning one of the most stubborn roadblocks to the housing market’s recovery is slowly eroding.
Nevertheless, a full throttle housing rebound is unlikely as long as job growth and household incomes remain stagnant. Indeed, the month-over-month improvement in July was not as strong as the improvement seen from June to July, when prices rose 2.3%. Home prices could flatten or even decline in coming months, producing a jagged recovery, and seasonal fluctuations from month to month should be expected, experts said.
“There is a seasonal pattern for house prices. Prices tend to be stronger in the spring and early summer, and then weaker in the fall and winter,” Bill McBride, the lead writer for the popular housing blog Calculated Risk, wrote this week. “This should come as no surprise and will not be a sign of impending doom.”
Sixteen of the 20 cities covered by the Case-Shiller index posted year-over-year increases in July. Overall, prices in the 20 largest cities in July were still down about 30% from their peak in mid-2006, before the housing market crashed. But prices were up about 8% from their lows in early 2012 and the Case-Shiller index reached its highest point since October 2010.
Atlanta had one of the biggest increases in July compared with June, with prices up 2.6%. The city’s real estate market had been struggling, and prices were still down 9.9% year-over-year. Home prices in Los Angeles increased 1.3% in July from June and rose just 0.4% year over year. The biggest improvement from a year earlier was in Phoenix, where prices jumped 16.6%.
The Case-Shiller index compares the latest sales of detached houses with previous sales and accounts for factors such as remodeling that might affect a house’s sale price over time.
Consumer confidence rose this month as people said they are more optimistic about their situation and the short-term direction of the economy, according to a report Tuesday by the Conference Board. The group’s Consumer Confidence Index climbed nine points in September to 70.3 after declining in August. The increase came as other consumer confidence measures also have risen amid improving economic signs, particularly the rebound in the housing market.
The index is roughly back to its February level, before a jump in gasoline prices and other factors helped drive it down through the spring and early summer.
“Despite continuing economic uncertainty, consumers are slightly more optimistic than they have been in several months,” said Lynn Franco, director of economic indicators at the Conference Board.
The index, which is compiled based on polling of consumers, found the percentage of people who saw business conditions as good rose to 15.5% from 15.3% in August. And 8.3% of respondents said jobs were plentiful, up from 7.2% last month.
Consumers also were more upbeat about the direction of the economy over the next six months, with 18.2% expecting business conditions to improve, compared with 16.7% in August. Expectations for continued job growth also rose, as 18.5% of people said they foresaw more jobs in the next six months, up from 15.8%.
With those views, 16.3% of consumers expected their incomes to increase in the coming months, up from 16% in August.