Overcoming Pessimism, Housing Prices Continue to Skyrocket

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Oh, pesky data. Just as Robert Shiller — Yale professor, co-creator of the most widely watched housing price index, and something of a housing bear — was graced with sharing a Nobel Prize for economics, his data series begins to zoom again. The S&P/Case-Shiller housing index August data, released today, shows a jump of 12.8% in housing prices year-over-year. The index has been on fire for several months, and this latest figure is the largest jump since the boom times of February 2006.

Sadly for Shiller, it contradicts his prediction early this year, in an interview on Bloomberg Television, that “I don’t expect it [housing] to come back. Not with the same force” as the boom of the early 2000s. The economist called that era’s view of housing as an investment “a fad.”

Yet pet rocks seem to be back, according to the data. The 20-city composite, which looks at Metro areas from Atlanta to Washington, showed year-over-year gains in every single city. (Market watchers like to examine year-over-year data since housing tends to be seasonal, with a market peak in the spring/summer as families move before the start of a new school year.) While the index is still 20% off its peak numbers, thirteen cities posted double-digit annual gains, led by speculator’s paradise Las Vegas, up 29.2%.

Of course it’s easy to leap off a low level, and Vegas’ gains reflect a climb towards normality after a massive speculative bust. Similar recoveries seem to be taking place in Phoenix (up 18.6% for the year) and Miami (up 13.5%).

Perhaps more worth remark is a 9.0% jump in Dallas, precisely because that’s a market that never quite succumbed to the bubble forces of the early 2000s in the first place. Yet “the city posted its highest annual gain since it was first published in January 2000,” as S&P noted in a press release.

Month-over-month, the 20-city composite was up 1.3%, a slowdown from the July/June change of 1.8%, but still notable as mortgage rates had been drifting upwards during the time in question.

So if housing prices are recovering in speculative markets, and recovering in non-speculative markets, what does that mean for housing? I’m going to go out on a limb and say that they’ll probably continue upward, at least in the very short term. The 16-day government shutdown depressed interest rates, with the most recent 30-year fixed rates coming in at an extremely palatable 4.39%, according to the Mortgage Bankers Association, which tracks rates.

In addition, whether it’s the case that Wall Street is running up prices or that continued inventory shortages have buyers in a tight place, the factors that have been pushing real estate upwards seem destined to continue, at least for the next few months.