Home Prices on the Rise!
Home Prices on the Rise!
American homeowners are finally digging out of the financial crater formed by the mid-2000’s real estate crash.
Single-family house prices in nearly 40% of 401 metro areas were at or above their pre-recession peak in the third quarter, according to an analysis of CoreLogic Case-Shiller home-price data by Moody’s Analytics.
That’s up from 30% of metro areas a year ago, and Moody’s projects nearly half of the regions will be at or above the milestone at the end of 2016.
“It’s a key benchmark,” says Mark Zandi, chief economist of Moody’s Analytics. “It means more and more people are building equity in their houses again.”
Homeowners are benefiting from steadily rising prices, largely because of tight housing supplies. S&P/Case Shiller announced Tuesday that prices in its national index were up 5.2% in October compared to a year ago. Moody’s estimates prices will climb another 5% or so next year.
Areas that are already 15% to nearly 50% above their pre-recession pinnacles include Texas cities such as Dallas that were never ensnared by the housing bubble, and energy and technology hotbeds, including Denver, Pittsburgh, San Francisco and Bismarck, N.D. Other metro areas recently hit the benchmark or are poised to do so in coming months as a result of healthy economic and job growth, including Charlotte, Portland, Ore., and Boston.
Yet many cities in the so-called “sand states” – Florida, Arizona, Nevada and California – were hit hardest by the housing crash and remain well below their peaks, despite substantial gains in home prices.
The return of many markets to their pre-recession highs can be a shot in the arm for consumer confidence. Like a bull stock market, rising home prices create wealth effects that can prod consumers to spend more. In areas whose home prices are above their previous apex, consumers spend an additional 3.4 cents for every dollar in increased home value, compared to 1.4 cents in regions below their pre-recession high, according to a Moody’s study.
“With the stock market, people get excited when you pass the previous high,” saysDavid Blitzer, managing director of S&P Dow Jones Indices. “The housing cycle is a lot longer… But I think it does show a substantial recovery.”
Another benefit of the milestone is that it can coax more homeowners to put their houses on the market, alleviating the supply crunch. About 8% of homeowners with mortgages owe more on the loans than their homes are worth and effectively are stuck in the houses, down from nearly 30% several years ago, according to CoreLogic. Yet for many homeowners, only a return to or above the previous high be enough to entice them to sell, Zandi says.
The rebound, he says, also should prompt more developers to build homes on overpriced lots they bought before the crash.
In Charlotte, a skimpy two-month housing supply – down from a healthy six months — has driven up prices to pre-recession levels. But many homeowners aren’t selling “because they have nowhere to go,” thanks to the limited inventory, says Sam Grogan, a broker at Coldwell Banker United. As prices continue to climb, he believes homeowners “are going to feel pressure to sell” by spring, even if it means compromising on the check-list for their next house.
Jack Seeley, 43, who lives in a four-bedroom house in South Charlotte with his wife and four children, has unsuccessfully hunted for a six-bedroom unit for months. He says the return of home prices to their pre-recession peak won’t provide a windfall because he’ll have to pay more for his new house as well.
But, he says, “I can put down a better down payment,” reducing his monthly mortgage costs.