As retrospective analysis of 2012’s economic returns becomes more fleshed out, some pretty astounding figures are emerging. While it’s clear that 2012 turned itself into an overall rebound year for the housing market, certain metrics have begun to paint a picture of precisely how exceptional 2012 was. As a recent article from USA Today noted, America’s home prices gained the greatest value in six years. As judging by the Standard & Poor's/Case-Shiller home price index for December, home values appreciated the greatest year-over-year since 2006.
Taking all this into consideration, the question remains as to not only why this rebound occurred, but what its endurance may be. Granting that the housing market had long rested in a nowhere to go but up quagmire, it seemed inevitable that when the market started gaining momentum, the return to form would be sharp. However, a 6.8% mean rise in nationwide home values is an exceptional jump considering the past four year’s economic trends.
As the fiscal waters become clearer, there is a spread of likely factors for why the nationwide rise in home values was so pronounced last year. The tandem combination of rising demand and lowered sales inventory was a natural engine for the growth in property values. As I noted in a prior post, much of this has to do with a reduction in the shadow inventory, a looming presence in the housing sector that persistently threatened to depress home values. This tightening in the supply-demand structure of the real estate market worked consistently to increase home values. Considering that a nationwide recovery in home values was a persistent trend last year, many homeowners also saw their mortgages submerge from months (or even years) of being underwater. This too has allowed otherwise restricted property holders to put their previously shackled property back on the open market.
This is naturally heartening news, as the housing market was the first major segment of the U.S. economy to plunge in recession. The fact that it has transitioned, however late, into a state of recovery only bodes well for the economy as a whole. Despite seemingly peripheral relation, the housing recovery has echoed as a boost in the jobs market as well. America’s homebuilders have begun to invest new human capital into building, speculation, and investment projects now that demand for new homes has recuperated.
Still, there are some areas of natural caution that Americans would be well advised to consider. As the USA Today story notes, the most impressive gains may have already occurred. The housing market’s sprint back to health last year is probably more a symptom of the market righting itself, as opposed to a sign of bullish growth. In fact, it seems that were investors to expect last year’s trends to continue, the specie of irrational exuberance that preceded the bubble could well repeat itself.
All in all, the housing market is likely to maintain a pattern of more lukewarm recovery in the immediate future. Assuming there’s no major fiscal flux, we’ll probably see instances of incremental recovery throughout the next four months. Home prices may continue appreciating, but not at the comparatively breakneck pace we saw in 2012. Prudent investors, it seems, would be well advised to consider yearly (or month-over-month) trends as what they likely are- indicative of standing market behavior, but ultimately transient.