Housing Prices Jump Again…and Wall Street May Be Playing a Role

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If journalists were allowed to bet (we’re not) it would have been easy to call today’s S&P/Case-Shiller housing price data. After jumps of 6.8% two months ago (reflecting December year-over-year sales) and 8.1% last month (reflecting January sales), “up” would have been a fairly easy prediction.

And, indeed, today’s announcement of a 9.3% year-over-year gain for February is right on trend. The number appears to reflect a broad national trend, with gains in each of the 20 metro areas the Home Price Index includes. Even New York, which had been the last holdout with a negative report of down 0.3% last month, came in with a 1.9% gain.

In fact, the index is ratcheting up with such speed that it no longer seems driven by people buying homes in which to live, especially in an economy with unemployment still at a pesky 7.6% and job growth low. Compare that with housing price gains of 23% per year in Phoenix; 17.6% in Las Vegas, and 16.5% in Atlanta. Prices are even up 15.2% per year in Detroit, which is enough to make many city mayors consider their own Clint Eastwood commercials.

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The answer to the paradox may indeed be buying by investors rather than homesteaders. First-time buyers, especially, have found current credit markets tough to navigate. The Federal Housing Administration, which traditionally provides a boost for first-time homeowners by insuring their mortgages, is now backing one-quarter of all homes purchased in America, up from a more typical 10 to 15% market share, according to a story by Rose Melly in the San Jose Mercury News. However, the FHA has made its policies more restrictive — and those purchases more expensive — by raising the mortgage insurance premiums (MIPs) that it charges by one-tenth of 1%. For homes under $625,000, the MIP has gone up from 1.25% to 1.35%. That may not seem like much, but when you’re trying to make a housing payment as a first-timer, every dollar counts.

Investment funds, by contrast, seem to be upping their spending. The percentage of home sales that were all-cash but not by individual investors rose from 10% to 11% in March, according to the National Association of Realtors. John Paulson, the billionaire investor often seen as a housing bellwether after he made $15 billion from the housing crash, has announced plans to start a second real estate fund, following its 2009 real estate fund, according to Pensions & Investments. But it’s the Blackstone Group that is known for leading this pack, having spent billions in the single-family market; the number that Wall Streeters like to quote is that founder Steven Schwarzman says that the firm is spending $100 million a week buying homes. If that pace continues, I’d guess — because I’d never bet — that we’ll have an uptick in the home price indices next month, too.

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