Go to the Globe and Mail homepage

Jump to main navigationJump to main content

A "for sale" sign is seen outside a home in New York in this June 19, 2012 file photo. (SHANNON STAPLETON/REUTERS)
A "for sale" sign is seen outside a home in New York in this June 19, 2012 file photo. (SHANNON STAPLETON/REUTERS)

REAL ESTATE

Rising U.S. home prices bode well for recovery Add to ...

The U.S. housing market is experiencing a strange and unfamiliar sensation: Across the country, home prices are rising.

The price gains point to an increasingly solid recovery in the housing sector, driven by rock-bottom interest rates, pent-up demand and a smaller supply of houses for sale.

An index of house prices in 20 major cities rose 5.5 per cent in the year to November, the largest such increase since 2006, according to closely watched figures released Tuesday by S&P Dow Jones Indices.

More Related to this Story

The renewed activity – by buyers, sellers and builders – is a rare bright spot in an economy which is expanding at a slow and frustrating pace.

The increase in prices is particularly significant, since it helps to rebuild a modicum of the wealth destroyed when the housing bubble burst and prods consumers to spend.

“Housing is clearly recovering,” David Blitzer of S&P Dow Jones Indices said in a statement Tuesday. “Prices are rising, as are both new and existing home sales.”

Home builders echo that sentiment. D.R. Horton Inc., a major builder headquartered in Texas, reported Tuesday that its profit for the quarter that ended in December more than doubled from the same period a year earlier.

The firm experienced a broad improvement of demand across its markets and “substantial increases” in the number of homes sold compared with a year ago, its chairman Donald Horton said in a statement. “We are looking forward to the spring selling season with optimism.”

Not surprisingly, the areas of the country that experienced the most dramatic decreases in home prices in recent years are now notching some of the strongest recoveries. The star performer in the year to November was Phoenix, where prices rose 22.8 per cent, according to S&P Dow Jones. In Las Vegas, they jumped 10 per cent.

Of course, the damage from the bust remains deep. One reason prices are rising quickly in such cities is because many borrowers are stuck in their homes, depressing the supply of properties for sale.

In Arizona, for example, nearly 40 per cent of mortgage holders owe more than their homes are worth, according to data from research firm CoreLogic, making it difficult or impossible for them to sell.

Yet even for those “underwater” mortgages, the picture is improving, albeit slowly. Rising prices pushed 1.4 million such homeowners out of their predicament in the nine months through September, according to CoreLogic.

The sustained nature of the recent price increases is making a difference, economists say. Through November, the 20-city price index from S&P Dow Jones rose for 10 straight months once adjusted for seasonal factors.

That has translated into an increase in household real estate wealth, which rose by almost $1-trillion (U.S.) over the first three quarters of 2012, according to the U.S. Federal Reserve Board.

“The real game-changer in housing has been the turnaround in prices,” said Patrick Newport, an economist at research firm IHS Global Insight.

While rising stock prices also make consumers feel wealthier and spend more, the effect from an improving housing market is even stronger, he said.

Barring a major economic shock, the housing market appears poised for further steady, not spectacular, improvement.

Modest job growth, low interest rates and restrained inventories are forces that “are going to be in place this year and next year also,” Mr. Newport noted.

In the know

Most popular videos »

Highlights

More from The Globe and Mail

Most popular