Latest S&P/Case-Shiller Report Shows Vast Improvement in U.S. Housing Market

by 03 May 2013

The most recent edition of the benchmark S&P/Case-Shiller Home Price Index for the top 20 metropolitan housing markets in the United States shows the greatest annual price increase since 2006. According to data compiled by the respected index, home prices rose by 9.3 percent from the 12-month period ended that ended on February 2013. Such annual increases were common at the height of the U.S housing frenzy of the early 21st century, but they have not been experienced in nearly seven years.

The Case-Shiller report is a favorite among economists and real estate analysts to dissect. Nick Timiraos of the Wall Street Journal and Bill McBride of Calculated Risk are two of the most prominent analysts of this report, and they both have interesting and positive views about what the latest Case-Shiller report predicts for the U.S. housing economy.

Clear Signs of a Rebound

Timiraos of the WSJ sees various positive signs that he thinks are bound to continue with regard to the improvement of the housing market. The first sign points to the still inadequate inventory, which is causing buyers are entering multiple bids on the properties owned by lucky sellers in select regional markets such as Phoenix.

Not all metropolitan housing markets may be able to sustain the ongoing home price increases. Phoenix and Las Vegas are seen as speculative markets that could produce their own bubble in the future, whereas Seattle and Dallas are experiencing growth in terms of employment and income levels. 

An interesting point brought up by Timiraos is that the Case-Shiller report may be amplifying home values by including foreclosures into the mix. Since many banks often grow impatient with their real estate-owned (REO) portfolios and liquidate some properties therein, this practice may provide a stronger contrast in pricing. Still, the Zillow home pricing report for March 2013 shows a 5.1 percent annual improvement without the inclusion of distressed properties sold.

Home Values in Real Terms

McBride of Calculated Risk dives deeper into the data provided by Case-Shiller and adds the Consumer Price Index (CPI) to get a more realistic sense of real estate prices in the U.S. in this century. When accounting for inflation, however, residential real estate in the top 20 metropolitan housing markets today is priced about the same as it was in late 2001. This somber analysis also entails that all the value gained by American housing from 1997 to 2007 essentially evaporated in less than five years.


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