Home prices rose 5.5% in the 12 months ending last November, a strong showing following a 4.3% year-over-year increase reading the month before, according to the S&P/Case-Shiller home-price index.
The gain was nationwide, with 19 of the 20 U.S. cities tracked in the index showing year-over-year price gains. Leaders were Phoenix (up 22.8%), San Francisco (up 12.7%), Detroit (up 11.9%), Minneapolis (up 11.1%) and Las Vegas (up 10%). The only metropolitan area to show a year-over-year decline was New York, down 1.2%.
“Housing is clearly recovering,” said David M. Blitzer, chair of the index committee that released the data, in a statement.
However, now that spring — traditionally the kickoff for the annual home-selling season — is around the corner, the larger question is, What will prices and momentum look like going forward? Robert Shiller, a co-creator of the index, argued in an essay in last week’s New York Times that “there is too much uncertainty to justify any aggressive speculative moves right now.”
Yet various indicators, in addition to the Case-Shiller index, are suggesting that many Americans are jumping into the market, some wanting to own their own residences, others largely for investment purposes. The National Association of Realtors reported to housing commentator Ken Harney that its foot-traffic index, which measures visits to open houses, was up over last year in a majority of housing markets. The housing barometer of Trulia, a leading listings website, jumped 25 percentage points over the past year, as delinquencies and foreclosures flattened. And Karl Case, economics professor emeritus at Wellesley College and a co-creator with Shiller of the closely watched index, was reported by Floyd Norris of the New York Times as looking at an investment property. Perhaps most notable, the National Association of Realtors reports that the December pending home-sales index – a measure of actual contracts signed — was at 101.7 in December, up from 95.1 a year ago.
So what could slow the market? Bad weather, known to cause month-to-month variations in indices, could cause buyers to stay home. But, somewhat ironically, a lack of inventory as the cupboard shelves get cleared out may prove to be a larger challenge for home prices as the year goes on. The National Association of Realtors reports that only 2.32 million homes are available for sale, a less-than-six-months’ supply. In certain localities the tightness is especially evident. In Silicon Valley, inventory is down more than 50% from a year ago. Chicago’s inventory has dropped 50% in two years. And Manhattan, according to data provider UrbanDigs.com, is near a five-year low in inventory.
The traditional response of markets to such scarcity, of course, would be increasingly rising prices. But that in turn entices sellers to come join the dance, and there’s reason to believe there may be pent-up supply — legions of would-be sellers who have been anxiously waiting for a turn-around to put their homes on the market — as well as builders awaiting good news so they can get back to constructing new homes. That would be good economically but could also prevent prices from quickly reaching and pushing past precrash highs.
Analysts will be watching closely to see how this dynamic will play out going forward. Stan Humphries, chief economist of the listing site Zillow, has this forecast: “Our December numbers show that annualized appreciation will get even higher before the year is over. But, we do expect appreciation for the full year of 2013 to be much more moderate as these home-price gains pull some sellers back into the market and new construction picks up.”