Markets really do cycle — if you wanted proof of that, today’s release of home price data showed a rise that seemed unthinkable five years ago.
The S&P/Case-Shiller Home Price Index showed a gain of 0.8% for December, following a rise of 0.9% for November, and finishing off a 2013 where home prices rose 13.4%. The heat of recent increases appears to be moderating, but still the housing market nationally is in far stronger shape than even a year ago.
The “sand states” — a term popularized by Wall Street chronicler Michael Lewis to describe the speculative markets of Arizona, California, Florida and Nevada — fared especially well in 2013. Of the 20 metro areas covered by the Case-Shiller index, Las Vegas had the greatest annual price jump, at 25.5%; on its heels were San Francisco (22.6%); Los Angeles (20.3%); San Diego (18.0%); Miami (16.5%); Tampa (15.8%), and Phoenix (15.3%). Rounding out the top ten metro for housing price jumps were Atlanta (18.1%), Detroit (16.6%), and Portland, Ore. (13.1%).
On a month-over-month basis, the composite index dropped by 0.1% for the second month in a row, but even so, nine metros were flat to up. If the behavior of the index is at all predictive, the housing market should be in for a good spring.
The two variables really are mortgage rates and inventory. Rates are indeed up: Bankrate, a web site that tracks financial data, indicates that the average 30-year-fixed loan rate is at 4.35%, up .02% from the week before. The direction alone is enough to bring housing bears out of hibernation, and in fact, “what will happen to rates in 2014″? is a legitimate question. However, it’s worth noting that on a $500,000 loan balance, last week’s move in rates is a payment differential of less than six dollars per month. Even six more months of a continuous creep upward at that pace wouldn’t be a deal breaker for most potential homebuyers.
Inventory is, to my mind, a much more worrisome question. The past year has reflected a somewhat thin market with continually increasing prices because there is little to buy. Redfin, a real estate brokerage that covers more than a dozen states nationwide, noted in a report last week that 58.1% of the offers its agents wrote in January faced competition from another bidder.
According to the National Association of Realtors, first-time buyers have been particularly absent from the housing market, accounting for 27% of all purchases in December and 26% in January. “Normally, they should be closer to 40%,” the NAR noted in a recent statement.
However, on a national level, inventory does appear to be rising. The most recent figure is 1.9 million homes for sale (that includes houses, co-ops and condos; New Yorkers and others in apartment-heavy markets should note that Case-Shiller price data doesn’t include co-ops and condos). That 1.9 million represents a 4.9 month supply of homes, up from December, according to NAR.