Home prices are appreciating at a rate not seen since 2006!
According to data from Standard and Poor’s and Case Shiller, August saw the largest increase in home prices in seven years. This is based on the results of both the S&P/Case-Shiller House Price Index 20-City Composite and the 10-City Composite – both of which rose by 12.8% on a year-over-year not seasonally adjusted basis.
According to an October 29 press release from the organization, home price gains were most significant in Las Vegas, where prices rose 29.2 percent and San Francisco, where prices rose 25.4 percent. Meanwhile, home prices in New York saw the slowest growth, at only 3.6 percent, over the previous 12 months. Despite showing 26 consecutive annual gains, Detroit remains the only city below its January 2000 index level, according to the press release.
What’s Causing the Higher Appreciation Rates?
Many factors have likely contributed to the increase in home price appreciation rates. Economic improvements such as lower unemployment have likely helped boost consumer confidence. Lower foreclosure inventories have helped prevent home values from suffering due to the sale of discounted properties in their community. Finally, mortgage rates have remained affordable, still hovering near historic lows. These favorable conditions combined to create what seems like the perfect climate for real estate.
Of course, there is still room for improvement. There are certain metros and local markets that continue to struggle to pull home values out of the pits, but on a national scale, the numbers are looking good. According to a November 6 Bloomberg article, prices for single-family homes climbed in 88 percent of U.S. cities in the third quarter. The article points to yet another contributing factor in the home price boost – limited inventory.
With fewer foreclosures on the market and some homeowners still reluctant to list their homes for sale, buyers in many metros are having to compete for homes in a smaller supply.
“Most regions of the country are experiencing strong home-price appreciation off a low base,” Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC in New York, told Bloomberg in a telephone interview. “Cities with the biggest price appreciation are in places that had bigger busts.”
While home rising home prices looks pretty good for the market on the surface, it can’t get out of hand – otherwise we could end up with another real estate “bubble” that will inevitably burst, just like it did a few years ago. Instead, real estate markets need to balance out the supply/demand ratio while economic conditions continue to improve. This is easier said that done, of course, as it will require more homeowners putting their properties on the market.
With so many homeowners still struggling with negative equity, it’s no surprise that this has been slow to happen. However, some impressive changes have been taking place in the world of home equity. Some homeowners who didn’t see their home values rise enough to get them back in the black with their home’s equity were still able to remedy the situation by applying for HARP refinancing – a special government-backed program that allows certain underwater homeowners to refinance their mortgage.
The bottom line seems to be that the real estate market is making great strides in it’s sustainable recovery, but a tight inventory remains a challenge for buyers.
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