Thursday, December 27, 2012

Housing Prices In “Sustained Recovery”

Popular Economics Weekly

The S&P/Case-Shiller Home Price Index October headline was “Sustained Recovery in Home Prices”, as housing inventories continue to drop, while the latest estimates of household formation for young adults in particular are as high as 1.3 million per year of new households to be formed in coming years.

The S&P/Case-Shiller Home Price Index, a leading measure of U.S. home prices, showed home prices rose 4.3 percent in the 12 months ending in October in the 20-City Composite. Anticipated seasonal weakness appeared as twelve of the 20 cities and both Composites posted monthly declines in home prices in October.


Graph: Calculated Risk

The 10- and 20-City Composites recorded respective annual returns of +3.4 percent and +4.3 percent in October 2012 – larger than the +2.1 percent and +3.0 percent annual rates posted for September 2012. In nineteen of the 20 cities, annual returns in October were higher than September. Chicago and New York were the only two cities with negative annual returns in October. Phoenix home prices rose for the 13th month in a row. San Diego was second best with nine consecutive monthly gains, said the Case-Shiller report.

And Housing Economist Tom Lawler via Calculated Risk estimates upwards of 1.3 million households annually could be formed over the next couple of years, due in part to pent-up demand and normal population growth.

Most of the evidence for rising prices comes from the huge drop in housing inventories. New-home sales’ inventories are down to 4.7 months in today’s release of new-home sales, levels we haven’t seen since the 1980s. This Calculated Risk graph dating back to June 1963 shows months of supply at historically low levels, which means an impending supply shortage.


Graph: Calculated Risk

New home sales were up 4.4 percent to an annual rate of 377,000. New home sales have slowly been building up momentum this year, while existing-home sales jumped 5.04 percent, and showed a similar drop in for sale inventories to 4.8 months.


Graph: Calculated Risk

Total Existing-home sales rose 5.9 percent to a seasonally adjusted annual rate of 5.04 million units in November, and are 14.5 percent higher than the 4.40 million-unit pace in November 2011. Sales are at the highest level since November 2009 when the annual pace spiked at 5.44 million.

Other indicators, such as declining vacancy rates show a similar lack of adequate housing inventories. This means that new home construction will have to essentially double in upcoming years to satisfy the need.

Harlan Green © 2012

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