Nothing’s wreaked quite the havoc on the U.S. economy, and indeed the national psyche, as the six-year slide in home prices. It wiped out some $7 trillion in household wealth, savaged bank balance sheets, and induced the Great Recession and the tepid recovery.
Yet there are unimpeachable signs that this national nightmare is now over. Home prices are starting to rise, if somewhat haltingly, in most areas of the country. And a number of forecasters predict home-price increases around 10% or so nationally over the next three years, with some metropolitan statistical areas, such as Midland, Texas, and Bismarck, N.D., likely riding the energy-exploration boom to better than 20% jumps in residential-real-estate prices. The turnaround, in fact, appears to be arriving exactly on the schedule that Barron’s laid out this year in a March 19 cover story entitled “Ready to Rebound.”
Of greatest moment, perhaps, was the release two weeks ago of the S&P/Case Shiller Composite 20-City Index that showed a jump in home prices of 2.3% in June over May. Likewise the Case-Shiller National Index in the second quarter rose 6.9% over the first-quarter level, before any seasonal adjustment. And for the first time since the summer of 2010, the National Index actually nosed ahead of the year-earlier quarter’s reading, if only by 1.2%.
“This increase in home prices, unlike the one that occurred in 2009-2010 as a result of the temporary tax credit for first-time home buyers, looks to be for real,” says David Blitzer, chairman of the index committee at S&P Dow Jones Indices. “We probably won’t see a V-shaped recovery in housing, with prices overall going up 20% in the next year. But this rally has legs, and prices will definitely be higher next year.”
“It has been six years since the housing market last experienced the gains we saw in the July numbers, with indications that the summer will finish up on a strong note,” says CoreLogic CEO Anand Nallathambi. “Although we expect some slowing in price gains over the balance of 2012, we are clearly seeing the light at the end of a very long tunnel.”
Yet some keen observers of the real-estate market, such as Moody’s Analytics’ Mark Zandi, are optimistic that home prices will rise as much as 10% from current levels by the end of 2014, once the shadow inventory is worked down over the next year or so. He points to such factors as the continued rise in effective rent rates (the main competition to home ownership), low mortgage rates, steady though slow improvement in job growth and improving availability of bank credit.
“We’ve clearly reached a key psychological shift in home buyers’ psychology, where folks are now starting to worry about missing the boat, rather than fearing whatever house they buy, no matter how attractive the price, can only go down in value,” Zandi explains.