Housing is finding a firmer footing - Image credit: Getty Images North America via @daylife
As Hurricane Sandy battered the coasts of the American Northeast, Standard & Poor’s released its latest Case-Shiller Home Price Indices, which recorded a fifth consecutive month of increases. While the news is encouraging, the increase in home prices slowed on a sequential basis as they remain about 30% off their 2006-peaks. Despite Sandy slowing the Northeast to a standstill, the U.S. economy continues to see signs of improvement.
While the U.S. economic recovery remains tepid at most, housing, one of the major factors missing in this turnaround, seems to be turning a corner. According the S&P’s head of indices, David Blitzer, “the sustained good news in home prices over the past five months makes us optimistic for continued recovery in the housing market.”
The latest data, which runs through August, shows that both the 10- and 20-city composites rose 0.9% on a monthly basis, with Seattle being the only city to see declines. On an annual basis, the 10-city composite gained 1.3% while the 20-city rose 2%, with Chicago being the only city to see a worsening in annual rates.
Home prices seem to have found a bottom over the five months to August, rising 8.5% from their early-2012 lows. The latest Case-Shiller data agrees with recent economic releases that showed housing strengthening on a series of indicators. As Blitzer put it:
News on home prices confirms other good news about housing. Single family housing starts are 43% ahead of last year’s pace, existing and new home sales are also up, the inventory of homes for sale continues to drop and consumer mortgage default rates are reaching new lows. Further consumer confidence continues to rise. Even as we end the seasonally strong home buying period, the statistics are positive.
The increase in house prices, which comes in addition to a series of other economic indicators showing residential real estate is on the comeback, is bullish for the U.S. economy. Fed Chairman Ben Bernanke, among others, has pointed out housing as one of the major sectors of the economy holding back the recovery. The Fed itself has targeted the housing sector through monetary policy, buying residential mortgage-backed securities in order to push interest rates down and provide further relief to mortgage-holders.
But housing is far from coming back. Prices remain about 30% off their mid-2006 highs, and in August, the increase in home prices actually slowed sequentially. In an annual basis, three cities (Atlanta, New York, and Chicago) showed negative growth rates.
Regardless, equities in the housing sector are on fire. The SPDR Homebuilders ETF is up nearly 20% over the past three months, substantially outperforming the general market. Specific names in the sector like Toll Brothers have also done better than general equity indexes, with KB Home actually gaining about 70% in that time.
Housing markets have clearly improved over the past few months. Having broken through the difficult resistance that kept a double-dip in prices as a constant threat, home prices have to see consistent and continued improvement in order to provide meaningful help to the rest of the economy.
