Home Prices Jump Again. Are We Out of the Woods Yet?

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Home prices as measured by the S&P/Case-Shiller Home Price Index jumped 6.8% year-over-year last December, closing out 2012 with a strong showing, as they’d risen 5.5% on the same basis the month before. Prices rose in 19 of the 20 metro areas tracked by the index, with only New York City as an outlier. (Gothamites, realize that the NYC data excludes co-op and condominium apartments, tracking instead the price of single-family homes in the metro area).

Especially stunning is the fact that except for Chicago (up 2.2%), Cleveland (up 2.9%), and Boston (up 3.6%), all of the metro area gains recorded were greater than 5%. On the high end, Detroit housing prices rose 13.6% year-over-year, while San Francisco zoomed 14.4%, and Phoenix roared up 23%.

Nationally, the index (which showed 15 years of house price increases up to its peak early in 2006) is now back to the levels of summer 2003. So is the housing slump over yet?

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Probably not, as anyone involved in the market can tell you. For one, inventory is historically low in many markets. According to the National Association of Realtors, there are currently only 1.74 million homes on the market across the country, which is the lowest level in nearly seven years, just a 4.2-month supply at the current pace.

Yet the bulk of home sales tend to hit in the spring and summer, so the tea leaves for 2013 won’t come out next month but rather three months from now, when Case-Shiller and other reports provide March data.

The trillion-dollar question to economy watchers is whether those reports will measure a strong flow of sales or a weak one. If spring ends up with too many investors chasing too few houses, we could end up seeing increasingly rising prices that don’t reflect much underlying strength. (Earlier this month, CNBC analyst Diana Olick raised concerns about “bubble price dynamics” caused by hedge funds.) On the other hand, if you’re a potential homeseller, and you see data reports of prices clocking along nicely, you might be tempted to list your home — which would be the recovery working the way Econ 101 professors say it should.

The key numbers to watch going forward, I think, are sales volume and cash sales. For January, the NAR reported sales at an annualized pace of 4.92 million units. If we start to see five-and-a-quarter million, or even five-and-a-half, later this spring, the housing market might finally be out of the woods for real.

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Provided, that is, that those transactions are between homesellers and homebuyers, and not homesellers and investors. The way market watchers make that distinction is to look at “cash purchases” — investors typically buy homes out of foreclosure with cash, while Joe Average usually buys his home with a mortgage from a bank or credit union. All-cash sales, according to the NAR, were 28% of transactions in January, down from 31% the year before. In looking at the housing market, it’s a good sign that that number is dropping. For data watchers, sometimes down is the best sign that things are looking up.

12 comments
lisamowmow
lisamowmow

@TIME @TIMEBusiness No, just not as many short sales and foreclosures in the mix to drag prices down.

TomNogaro
TomNogaro

nice try: ben feeds blackrock and gang free monopoly money to buy zombie houses on the lamb for near free. media puppets, ie, muppets, report recovery like no other. no foreclosures, and so no taxes not paid by banksters. yet susie and john q. cannot get a mortgage for newborn baby q. all is well in mudville. lol!

kaybee_baby702
kaybee_baby702

@TIME @TIMEBusiness Nope... this is just a faux front and repeat of the past. Banks are purposely holding on to fc homes and push new ones

samuelprime
samuelprime

@TIME @timebusiness - lets wait till March 1, and maybe a week or so after, before we jump to that conclusion (about house prices).

kenjohnson1988
kenjohnson1988

@TIME @timebusiness No, it means house prices are up. If the slump were over, you'd have posted a different headline. #duh #SMH #LOL

yero69
yero69

@TIME @TIMEBusiness slump property prices are often inflated and artificial that is why at times the go pop

financeboomer
financeboomer

Interesting take on the real estate market.

Helen 

Boomers, Markets & Money

MortgageMan
MortgageMan

Great time for Canadians to buy those U.S. vacation homes before prices go up too much. Also, the Canadian dollar is at par....will it be back down to 75 cents in a few years??  Rising real estate prices and a falling Canadian dollar make it a WIN/WIN for Canadian investors.  

It's very important to use a knowledgeable real estate agent, and I have a great one in Ft. Lauderdale area.  She's relocated from Toronto to Florida fifteen years ago.

Also, I'm a mortgage broker in Ontario.  Although most Canadians use lines of credit to purchase in the U.S., there are other options as well!!!   

TAZTlh
TAZTlh

What about all the foreclosures the banks are holding back?  I hear it is 90%