Home prices in 20 US cities have risen on a year on year basis for the first time since 2010, when the government tax credit gave the market a temporary respite, in the latest sign that the US housing market is indeed bottoming after a 6 year depression.
While not the first report of rising prices in the US, this latest report does mark the first annual increase, and it comes from the S&P/Case-Shiller index, which is the most widely respect measure of the US housing market's performance.
According to the index, house prices in the 20 US cities were an average of 0.5% higher in June 2012 than June 2011. This is after a 0.7% year on year drop recorded in May. The last time prices rose on an annual basis in the S&P/Case-Shiller index was September 2010, and on a quarterly basis prices jumped by more than they have in 6 years.
Analysts are putting the growth down to record low mortgage rates and a decrease in distressed property sales. Meanwhile rising rents continue to make buying a better option and at the same time falling stock levels after years of weak construction are helping to solidify the floor beneath prices.
"Finally, the housing market is forming a bottom," Mohamed El-Erian, chief executive officer and co-chief investment officer of Pacific Investment Management Co., said on Bloomberg Television's "In the Loop" with Betty Liu. "That should be welcome. It is not surprising because affordability is so attractive right now."
"This ain't tax credit driven," said Thomas Lawler, a former Fannie Mae economist who is now a Virginia-based housing consultant. "There are fundamental reasons to expect home prices have bottomed and will continue to show gains."
The positive housing news continues to build, however it is not all plain sailing. The latest sentiment index showed consumer confidence at a new low as households grow more pessimistic about their employment prospects and the economic outlook.
- Friday 31 August 2012