The U.S. saw its biggest year-on-year house price rises since July 2006 in December 2012, according to Standard and Poor’s Case-Shiller Home Price Indices, released February this year.
The rise in prices across 20 U.S cities was 6.8%, and the national 1-year change was 7.3%. That’s slightly over the 6.62% rise widely expected by economists. The highest-performing city was Phoenix, Arizona, posting a 23% 1-year increase, while the poorest performers were Chicago, at 2.2%, and New York, which saw a 0.5% fall in property prices. That compares with a growth rate for the economy as a whole of around 2%.
Unlike the year-on-year rise, which was led by Phoenix, the month-on-month rise in house prices was led by Las Vegas and Los Angeles. The final quarter of 2012 saw prices fall by 0.3% from the previous quarter, but still 7.3% above their fourth-quarter 2011 figures. However, the year-on-year figures are a better indicator of trends in prices, according to a panel of economists that includes Karl Case and Robert Shiller, the economists who came up with the Case-Shiller index. ‘As of the fourth quarter of 2012,’ says Standard and Poor’s press release, ‘average home prices across the United States are back at their Autumn 2003 levels.’
Overall, ‘home prices ended 2012 with solid gains,’ says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. ‘Housing and residential construction led the economy in the 2012 fourth quarter,’ Mr. Blitzer went on. Purchases of previously-owned homes rose in January even as depleted inventories restrained further improvement. The National Association of Realtors reported last week that about 4.66m existing homes were sold last year, the highest figure since 2007.
Not everyone agrees that it’s a ‘real and sustainable recovery,’ though, in the words of one doubter, Quinn W. Eddins, Director of Research at RadarLogic, a data and analytics business. Mr. Edins says he expects home prices to decline temporarily this year, as the rise in supply caused by the increase in prices last year tilts the market back towards oversupply. ‘Home prices are likely to follow such a saw-tooth pattern form a number of years, until consumer demand increases and inventories of distressed homes return to historical norms,’ Mr. Eddins writes, referencing his belief that job growth and rising consumer confidence are not playing a sufficient part in the housing market.
It’s possible to self-inflate a housing market for a while, with construction and sales driving each other without input from the wider economy, though it usually ends in disaster. And sometimes even city-wide statistics can disguise rises in prices at one end of the market while the rest founders. We’ve seen recent examples of a two-tier housing recovery in the USA, when luxury properties recover or even boom while foreclosures rise. But that isn’t happening here.
Borrowing costs, though they have risen slightly, are still at near-record lows and gains in employment are fuelling demand. Property values are rising as foreclosures fall and the number of houses on the market is also decreasing, indicating a general recovery in the market.
It’s not local to one area, either. ‘The key here,’ says Brian Jones, a senior US economist at Societe Generale in New York, ‘is it’s not as if we’re getting all the juice from one area, it’s broadly based across the country.’ Mr. Jones correctly predicted the rate of rise over 2012. He goes on to explain, ‘rates are low, prices are attractive, so affordability is high, and the labor market is gradually healing as well.’ He goes on to offer this advice: ‘If you were in the market to buy a home, now it’s a good time.’