Home Prices – Is the Boom Back?
If you’re looking for things I’ve been wrong about recently you can chalk housing up on the list. Last year I said I expected housing’s downside was fairly limited and said that long-term buyers shouldn’t hesitate to buy, but that the market was likely to muddle through in a classic post-bubble workout period. Now, it might be a bit too early to declare a new boom, but the latest data from CoreLogic certainly looks very positive and has to have us all asking the question – is the next boom already beginning?
More via CoreLogic:
Home prices nationwide, including distressed sales, increased on a year-over-year basis by 8.3 percent in December 2012 compared to December 2011. This change represents the biggest increase since May 2006 and the 10th consecutive monthly increase in home prices nationally.
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“December marked 10 consecutive months of year-over-year home price improvements, and the strongest growth since the height of the last housing boom more than six years ago,” said Mark Fleming, chief economist for CoreLogic. “We expect price growth to continue in January as our Pending HPI shows strong year-over-year appreciation.”
“We are heading into 2013 with home prices on the rebound,” said Anand Nallathambi, president and CEO of CoreLogic. “The upward trend in home prices in 2012 was broad based with 46 of 50 states registering gains for the year. All signals point to a continued improvement in the fundamentals underpinning the U.S. housing market recovery.”
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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18 Comments
This could be huge, at least according to the Real Estate Monetary Standard
We could be in for some nice “loans create deposits” action.
It must mean that the 3% downs are back again…
I saw 3K down on a 140K starter home recently…Although, in fairness, they never actually left, they’re just flowing a little easier these days.
I just got a 30-yr, 220K, 3.5% down loan at 3.75%
cullen, doesn’t this all give credibility to the idea that monetary policy has worked?
a 5% YoY print after home prices drop 30-35% means ‘monetary policy worked’!?!?
Look at absolute prices:
http://1.bp.blogspot.com/-gpo3JmZk0dY/UREPvP6d_SI/AAAAAAAAYSI/-b4gnQGLUsc/s1600/CoreLogicDec2012.jpg
“is the next boom already beginning?”…. seriously?
Lower lows, lower highs… when an apples to apples comparison is done.
HooCouldAKnowed…
jswede – your chart seems to indicate the froth has been worked off and housing is back on a sustainable track. See my comment below… we’ve got room to run from here.
What would happen if housing were actually exposed to free market forces? When the FED stops supporting housing with low interest rates? And recent fly-by-night “investors” want to sell their crummy rentals?
Just to be clear–I think house prices need to come down in many communities. Cullen objects to fuzzy language regarding US “solvency.” I object to fuzzy language regarding “housing recovery.” Housing was not healthy in 2006: it was sick like with a fever. Until the fever comes down to normal where a median income can afford a median turn-key house, the patient is still sick and recovery is not complete. Recovery does not necessarily mean increasing prices,and increasing prices is not necessarily a sign of recovery, but relapse.
Good point. The young person buying a home is always forgotten in this equation. Of course, the young person with a student loan or trying to get a decent job is also not part of the economic discussion.
Monetary policy has ‘worked’ in the sense that its has improved the balance sheets of banks holding mortgages.
Remember the financial crisis started because banks leveraged those loan assets and got the mother of all margin calls.
My sense is that the pickup in home prices is artificial, driven by low rates and the banks keeping distressed homes off the market.
Long-term factors still imperil a genuine housing recovery. As Lucas notes, stagnant wages mean the median household cannot afford a decent house; also fewer households are being formed; also the boomers are moving out of homes and selling second homes.
While I agree with the idea that a sick patient is merely feeling better and may not actually be recovering in a healthy way, there are a few stats you have to know to accurately judge the state of the housing market.
1. with interest rates so low, and home prices down a LOT from the peak, debt PAYMENT to income is at 1982/83 levels. that is pretty stunning since that’s when the last bull started in both housing and stocks
2. actual debt to income is back to 2003 levels. So even on this measure it could portend a 3 to 5 year run is possible in stocks, housing and resulting jobs
3. that shadow inventory everyone keeps citing largely doesn’t exist. large institutional type investors have bought huge blocks of homes. so have individual investors. There is a reason inventory is at record lows in nearly every major market. in my own market our inventory is 1/3 normal for this time of year and its been like this for the past 9 months or so. if the banks have inventory, they could release it right now for close to peak pricing
4. housing starts, and new house formation took 5 years off. there is a ton of pent up demand
5. we’re seeing the current “boom” with low interest rates only…. meaning lending standards are still very tight. So if you consider #1 and #2 above, and throw in easing lending standards as banks see house prices rising, we well could have a 2 to 5 year boom
What I’m saying is that we could be repeating 2003 to 2006/7/8 again, which of course would lead us right back to a new crisis. So no, maybe the patient isn’t sick, but he’s feeling pretty darn good. The question is, will the US consumer get sucked back into this? Or are they smarter from the last experience and will keep paying down debt instead of taking more on?????
i meant to say “so no, maybe the patient isn’t HEALTHY…”
Points all worth considering, except the last one, which blames the consumer for the financial crisis.
The crisis wasn’t caused because consumers started foreclosing, the crisis was caused when financial institutions took those loans, securitized them and began leveraging them.
So maybe the question is: Will the banks be sucked into all this? As long as the Fed is backstopping them, probably yes.
Good to see some positiveness around here, Hanger.
Hangemhi, I agree that there may be a true bottom in some communities. In others, housing is still far from healthy based on your 1 and 2. Also when interest rates inevitably rise, home prices will fall, putting current buyers underwater again.
3. Agree there are a lot of new landlords out there, usually offering crummy rentals because they bought fixers and are making them only as habitable as local ordinances require. Mostly they are crummy rentals. These landlords may want to sell in the near future, putting that so-called inventory back on the market.
4. I agree there is pent-up demand. If my community is any indication, these people are paying too much as they will learn when interest rates go up.
5. The FED is already sending signals that it intends to raise interests rates sooner rather than later.
Exactly…
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