Home prices rebound

By Chris Isidore @CNNMoney September 25, 2012: 10:11 AM ET

Home prices are back to 2003 levels in the latest sign of an improved housing market.

NEW YORK (CNNMoney) -- In another sign of a turnaround in the long-battered real estate market, average home prices rebounded in July to the same level as they were nine years ago.

According to the closely watched S&P/Case-Shiller national home price index, which covers more than 80% of the housing market in the United States, the typical home price in July rose 1.6% compared to the previous month.

It marked the third straight month that prices in all 20 major markets followed by the index improved, and it would have been the fourth straight month of improvement across the full spectrum if not for a slight decline in Detroit in April.

The index was up 1.2% compared to a year earlier, an improvement from the year-over-year change reported for June. While home prices have been showing a sequential change in recent months, it wasn't until June that prices were higher than a year earlier.

The July reading matched levels last seen in summer 2003, when the market was marching toward its peak in 2006. The collapse of the market after that led to the financial crisis of 2008.

"The news on home prices in this report confirm recent good news about housing," said David Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. "Single-family housing starts are well ahead of last year's pace, existing home sales are up, the inventory of homes for sale is down and foreclosure activity is slowing."

Record low mortgage rates and a tighter supply of homes available for sale have helped to lift home prices. Lower unemployment also has helped with home prices, although job growth in recent months has been slower than hoped.

Earlier this month, the Federal Reserve announced it would buy $40 billion in mortgage bonds a month for the foreseeable future. This third round of asset purchases by the central bank, popularly known as QE3, is its effort to jump start the economy through even lower home loan rates.
 
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Mike Larson, real estate analyst with Weiss Research, said part of the improvement in the housing market is due to investors using the low mortgage rates to buy up homes that are in foreclosure and renting them in a strong rental market.

But he said that he doesn't think there's much chance of housing prices forming any kind of new bubble in the foreseeable future.

"Clearly the worst is behind us for this market., but this is not a market that is going to take off again," he said. "While you have a firming up, you still have tight lending standards and people who have been burned are reluctant or unable to get back in the market." He predicts it will take several more years before housing prices can gain more than 1% to 2% a year.
 
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But that is good news for a housing market that was plagued by plunging home values and high foreclosure rates for much of the last six years. And the good news has the potential to build on itself, said Joseph LaVorgna, chief U.S. economist for Deutsche Bank.

"Housing remains a rare bright spot in an economy that is otherwise muddling through," he wrote in a note to clients Tuesday. "The price trend for housing is significant, because it provides economic stimulus via stronger household balance sheets."
 

Home prices may not return to peak until 2023

By Les Christie @CNNMoney September 26, 2012: 6:15 AM ET

The severe decline in home prices may mean some homeowners who bought at the peak may never get their money back.

NEW YORK (CNNMoney) -- Home prices are showing signs of life, but have a long way to go to make up for losses from the housing bust.

U.S. home prices dropped by a third from the start of 2007 to the start of 2012, according to Fiserv, an analytics firm.

Fiserv forecasts prices will bounce back an average of 3.7% a year for the next five years -- a rate that would still leave prices 20% below the peak. At that forecasted growth rate, the national average high of $238,000 would not be hit again until 2023.

It could take even longer in some areas. "In some hard-hit markets, prices could take decades to recover," said Fiserv economist David Stiff.

Among those facing a long haul: Arizona, California, Florida and Nevada, the states most caught up in the speculative feeding frenzy of the mid-2000s.
 
Related: Buy or rent? 10 major cities
In California, for example, home prices should grow a little faster than the national average. Fiserv projects 4.4% gains during the next five years. But the hole is also deeper, with prices having fallen nearly 46% from early 2007 to early 2012. Break even won't come until after 2026.

Homeowners in Nevada may have to wait the longest to make up lost ground. Home prices in the state plunged nearly 60%, and Fiserv projects annual gains of just 2.3%. It would take some 40 years at that pace to get back to 2007 levels.

Real estate, of course, is local, and there are many housing markets that never bubbled during the boom. In those places, buyers who bought in 2007 are much more likely to be in the money today. In South Dakota, Texas and West Virginia, prices are already slightly higher than they were five years ago.

In North Dakota, a housing shortage driven by the oil boom has sent prices soaring 17.7% over the past five years.

Iowa, Oklahoma and Nebraska, are nearly back to peak, as are Kentucky, Vermont and Alaska. These were all housing markets that recorded only mild price increases during the boom.

Asking Prices Rise 2.3% Year Over Year

The Trulia Price Monitor and the Trulia Rent Monitor are the earliest leading indicators of how asking prices and rents are trending nationally and locally. They adjust for the changing mix of listed homes and therefore show what’s really happening to asking prices and rents. Because asking prices lead sales prices by approximately two or more months, the Monitors reveal trends before other price indexes do. With that, here’s the scoop on where prices and rents are headed.

National Home Prices Up 2.3% Year over Year, and Rising in 68 of 100 Largest Metros
In August, asking prices rose 2.3% year over year, the largest annual jump reported yet by the Trulia Price Monitor and the largest year-over-year increases since before the recession. Excluding foreclosures, asking prices rose nationally 3.8% year over year. The month-over-month increase of 0.8% was the seventh consecutive monthly increase. Two-thirds of large metros – 68 out of 100 – had year-over-year price increases, and even more – 87 out of 100 — had quarter-over-quarter increases.





Prices Gains Accelerating Most in Arizona and Nevada 
Let’s look at the top 10 markets with the largest year-over-year price increases. Asking prices in Phoenix rose 24.2% year-over-year in August. Two other Southwest metros – Tucson and Las Vegas – are on the top-ten list, along with four Florida metros (Cape Coral – Fort Myers, West Palm Beach, Miami and Orlando), Warren-Troy-Farmington Hills MI, Denver and San Jose. The Southwest metros of Tucson and Las Vegas have seen the biggest turnaround: three months ago, in May 2012, prices were falling year over year in those markets. In contrast, Miami’s year-over-year price increase slowed, from 14.5% in May to 9.6% in August.  Miami prices rose only 1.1% quarter-over-quarter – which is below the national quarter over quarter increase of 1.8%! – so Miami’s gains aren’t so hot anymore.





Rent Increases Slow Down to 4.7% Year Over Year, Thanks To New Construction
In August, rents rose nationally 4.7% year over year. That’s the smallest year-over-year increase since March. Three months ago, in May, rents were up 5.8% year over year. What’s slowing down those rent increases? One big factor is new construction: according to the Census, there was a big jump in the number of newly completed buildings with five or more units – which means more rental units are on the market to meet demand. Completed new units in multifamily buildings in July – the latest data available – were 47% higher than a year earlier.

Among the largest 25 rental markets, rents rose the most in Houston and Seattle, where they climbed more than 10% year over year in August. But renters are getting a touch of relief in Denver, San Francisco, Miami, Oakland and Boston, where rents are no longer rising quite as fast as they were three months ago. That may not be much comfort, though, since these hot rental markets are still seeing annual rent increases of 8% or more.

Bringing It All Together: Prices, Rents and Wages
With price increases accelerating and rent increases decelerating, the national year-over-year price increase, excluding foreclosures, of 3.8% is gaining ground on the national year-over-year rent increase of 4.7%. If prices start rising faster than rents, then buying a home won’t be getting any cheaper relative to renting.
And there’s another milestone: with prices excluding foreclosures up 3.8% year over year, prices are also rising faster than wages, which rose 2.6% year over year in 2011 according to the Bureau of Labor Statistics. When price increases outpace wage increases, affordability starts to decline. (Check out our post comparing affordability across metros, showing how long it takes to save for a downpayment.)

In short: price increases are important for the housing recovery and are great news for homeowners, particularly those who are underwater. They’re good news for the economy, too, since price increases encourage builders to start new construction, which in turn creates jobs. But this is a bit of a catch-22. Rising prices will also make housing less affordable for those who don’t own, especially if prices start rising faster than wages.

Will these trends continue? Look for the next Trulia Price Monitor and Trulia Rent Monitor on Thursday, October 4, 2012 at 10AM ET.

How did we put this report together? To recap the methodology, the Trulia Price Monitor and the Trulia Rent Monitor track asking home prices and rents on a monthly basis, adjusting for the changing composition of listed homes, including foreclosures provided by RealtyTrac. The Trulia Price Monitor also accounts for the regular seasonal fluctuations in asking prices in order to reveal the underlying trend in prices. The Monitors can detect price movements at least three months before the major sales-price indexes do. Our FAQs provide all the technical details.

Jed Kolko, Chief Economist 

Jed leads Trulia’s housing research and provides insight on market trends and public policy to major media outlets including TIME magazine, CNN, and numerous others. Jed’s background includes a Ph.D. in Economics from Harvard University and more than 15 years of publications and research management in economic development, land use and housing policy, and consumer technology adoption.