Home Prices Indicate Economic Recovery Despite Looming Fiscal Cliff

Economic doomsday theorists may persist in their declarations that an unresolved fiscal cliff spells disaster for the U.S. economy, but recent data from Standard and Poor/Case-Shiller says otherwise. The organization’s national home price index, released Dec. 26, increased 4.3 percent in October compared to a year ago—the largest year-over-year increase since mid-2010 when a tax credit temporarily boosted home sales.

October home prices rose in 18 of 20 cities from October 2011, even as the housing market moves into its slower fall and winter sales period. Some regions, such as Phoenix and Detroit, even saw double-digit increases.

“One indication of the rebound is the gains from the bottom,” said David Blitzer, chairman of the index committee at S&P Dow Jones Indices. “The largest rebound is 24.2 percent in Detroit even though prices there are still about 20 percent lower than 12 years ago. San Francisco and Phoenix have also rebounded from recent lows by 22.5 percent and 22.1 percent with prices comfortably higher than 12 years ago. The smallest recoveries are seen in Boston and New York, two cities in the northeast which suffered smaller losses in the housing bust than the Sunbelt or California.”

October marked the fifth-consecutive month of year-over-year increases following almost two years of declines, indicating not only a strengthening housing market but improving overall economic conditions.

“Many analysts and market participants look to housing as a foundation for the health of the broader economy,” said CNBC’s Jackie DeAngelis. “The school of thought is that housing must show signs of life before the U.S. economy can really improve.”

According to Blitzer, housing is definitely beginning to contribute to economic growth. Last week’s revisions to third-quarter gross domestic product indicate housing represented 10 percent of growth while representing less than 3 percent of overall gross domestic product. Plus, home prices nationwide have now returned to their autumn 2003 levels in both the 10-city and 20-city composites.

Higher property values lead to higher consumer confidence and increased consumer spending. As mortgage rates remain low thanks to Federal Reserve stimulus measures, housing demand is likely to continue on its upward trend, and property values will keep rising as well.

“The housing market is definitely starting to recover,” Ryan Wang, an economist with HSBC Securities USA Inc., told the San Francisco Chronicle. Higher property values have “added about a trillion dollars to household wealth just since the beginning of this year.” Likewise, the boost to household net worth “will provide an important benefit for consumers and for the broader economy.”

Although the year-over-year numbers were positive, home prices fell from September to October—not unexpected given typical seasonal weaknesses. September generally marks the end of the peak buying season, and since monthly trends are not seasonally adjusted, the .1-percent decrease did not diminish the overall “sustained recovery” demonstrated by the annual gain.

“The October monthly numbers were weaker than September as 12 cities saw prices drop compared to seven the month before,” Blitzer said. “Annual rates of change in home prices are a better indicator of the performance of the housing market than the month-over-month changes because home prices tend to be lower in fall and winter than in spring and summer.”

  • Unbelievable

    The payments are the same. The prices have only gone up because of 3.5% 30-year mortgages, bought and paid for with our future earnings..by the Fed’s printing press. Get real.

  • Anonymous

    Keep drinking the koolaid