While it has become clear that the housing market is turning a definite recovery, figures from FY2012 demonstrate that the average price of homes sold nationwide has appreciated at the fastest yearly rate in six years. According to new analysis from Bloomberg, the year-over-year rise in home values from November 2011 marks the most significant increase since 2006. Drawn primarily from the S&P/Case-Shiller index of property values, the collective value of American residential property has climbed a full 5.5% percent, apparently the greatest year-over-year appreciation since approximately two years prior to the 2008 crash.
Why Prices are Rising
It seems that the rise in property values can be tied directly to a drop in the number of unsold houses coupled with rebounding consumer confidence. Home closings increased month-over-month throughout the latter half of 2012, and this sales increase worked to motivate a substantive climb in the value of market-ready property. The elevation of home prices has been most pronounced among urban property, with the greatest rise in home values occurring throughout major U.S. cities. Considering that a rise in asking prices often corresponds with greater demand for local property, urban residents may finally be breaking from the ‘renter’s cycle’ and moving towards closing on homes instead.
Why the Home Value Increase Matters
Taking this positive news in stride, what might this mean for the housing market, and the greater U.S. economy in 2013? As the Bloomberg report notes, overall economic growth has slowed somewhat, partially as a consequence of unease around the payroll tax hike. However, the housing market’s recovery is resting on steady ground, with a spread of economic factors bolstering stability. Mortgage rates are currently resting at record lows, a particularly strong motivator for otherwise disinterested homebuyers to close. This could well lessen the volume of unsold property while encouraging further climb in home values.
In addition, previously faltering regional markets have managed to get back on their feet within the past year. California real estate was hit exceptionally hard by the 2008 market crash, but 2012 saw residential property throughout some of the West Coast’s most popular metros recover with remarkable fortitude. The fact that we’re witnessing less regionally defined unease will only strengthen the market, with growth in the real estate sector poised to emerge as one of 2013’s economic victories.
As David Blitzer, chairman of the S&P index committee, recently stated, the housing sector is directly contributing to overall economic growth. Property sales rose a clean 9.9% last year, which marks the greatest annual increase since 1998. The reported earnings of America’s publicly traded homebuilding corporations have outshone analysts’ predictions as well, and this earnings increase was likely motivated by a sudden release of pent-up home demand. Taking out a mortgage remains unintimidating in light of the low interest rate, which will only encourage sales.
Considering the American economy continues to add jobs, and that our stock indexes are climbing steadily, 2013 may spell a cautiously optimistic year for the market. Despite Q1 faltering from cross-bracket tax adjustment, our economy looks poised to continue pacing a steady recovery through the close of the year. Whether or not the greater economy maintains an even rebound, the housing market is set to emerge as one of 2013’s most resilient sectors.
Photo: AG Toine