The S&P/ Case-Shiller Housing Price Report for November 2012 was released on Tuesday, January 29, 2013. The pessimists who look at the data are likely to say something along the lines of “home prices in the United States fell in November. Of the 20 cities reporting, ten had lower prices than in the prior month.” Optimists on the other hand will look at the November 2012 sales compared to the same month in 2011 and proclaim: “home prices gain 5.5 percent in year to year comparison. For November 2012 the comparison to October 2012 shows a small, 0.1 percent drop, in prices.
So, what’s the real story for the housing industry?
It’s on a roll! Yes, the Case-Shiller did fall by 0.1 percent from October 2012. However, most knowledgeable economists say that December historically sees smaller gains or even slight contractions in housing prices as it is the slowest time of year for purchasing a new home.
The real story about this month’s Case-Shiller index is that by taking a look at the entire year it is clear that the housing industry is anchored in recovery.
Why the Housing Industry Is Gaining Strength
Mortgage rates continue to hover at near record lows and are stimulating the demand for real estate at a rate that exceeds supply. Gains in home equity along with a job market that continues to crawl into recovery may help offset the two percent decrease in take home pay that American workers began to feel in January. This may help by creating a foundation for America’s consumer confidence, which is important because consumer spending is the largest part of the American economy.
Housing inventories are low which is good news for sellers as home prices will rise. Higher prices for single family homes tends to boost consumer confidence and overall spending.
Case-Shiller reported that combined sales of new homes and previously owned homes rose 9.9 percent in 2012. This is the biggest annual gain since 1998.
December did see purchases of homes that were previously owned fall unexpectedly. But according to the National Association of Realtors the dip in purchases was caused by a lack of available homes for sale. There were only 1.82 million existing homes available in December 2012- this is the lowest inventory of existing homes since January 2001.
Of the 20 cities reported in the index all but one recorded a year-over-year gain. That city was New York which showed decreased property values both on a month-to-month and year-to-year comparison. For the 12 month period ending November 2012 property values in the city fell by 1.2 percent.
The Case-Shiller index is calculated on a three-month average. This means that the data reported for November were influenced by home sell transactions occurring in October and September.
When looking at the data on an annualized basis there is no doubt that housing is an extremely strong sector of the United States’ economy and is very influential on the country’s recovery. The glass is definitely half full and is continue to fill.