S&P/Case-Shiller index reports prices 10.9% higher in March than a year earlier, spurring rally on US stock markets
US house prices were 10.9% higher in March than a year earlier, the largest increase in close to seven years, according to a closely-watched index tracking home prices in 20 major cities.
The news, and signs of growing consumer confidence, helped spur a rally on US stock markets, which closed at new highs. The Dow Jones Industrial Average gained over 106 points to close at 15,409, while Standard & Poor’s 500-stock index closed up 10.46 points at 1,660.
Economics thinktank the Conference Board reported that its consumer confidence index hit a five-year high in May. The index rose to 76.2, the strongest figure since February 2008 and higher than economists had forecast.
All three S&P/Case-Shiller Home Price Indices reported double-digit annual increases in home prices in March. The 10-city index rose 10.3%, the 20-city index rose 10.9%, and the national composite index rose 10.2%.
The housing market has long been seen as a stumbling block for economic recovery in the US, and problems remain. Gains, however, are widespread, according to the latest report. Phoenix had the largest annual increase at 22.5%, followed by San Francisco with 22.2% and Las Vegas with 20.6%. Miami and Tampa recorded annual gains of 10.7% and 11.8% respectively.
The weakest annual price gains were seen in New York (2.6%), Cleveland (4.8%) and Boston (6.7%). “Even these numbers are quite substantial,” said David Blitzer, chairman of the index committee at S&P Dow Jones Indices.
Prices for the 10- and 20-city indices rose 1.4% from February to March and by 0.3% in January to February, a period in which sales are typically muted because of winter weather. In the first quarter of 2013, the national composite rose by 1.2%. Charlotte, Los Angeles, Portland, Seattle and Tampa recorded their largest month-over-month gains in more than seven years.
“Home prices in all 20 cities posted annual gains for the third month in a row. Twelve of the 20 saw prices rise at double-digit annual growth. The national index and the 10-and 20-city composites posted their highest annual returns since 2006,” said Blitzer.
“Other housing market data reported in recent weeks confirm these strong trends: housing starts and permits, sales of new home and existing homes continue to trend higher. At the same time, the larger than usual share of multi-family housing, a large number of homes still in some stage of foreclosure and buying-to-rent by investors suggest that the housing recovery is not complete.”
Home prices have now returned to levels last seen in 2003, but remain 28% below their 2006 peak. According to a recent report from housing analyst Zillow, 25.4% of US homeowners were in negative equity – owing more than their homes are worth – in the first quarter of 2013, down from 27.5% in the fourth quarter of 2012.
Ed Stansfield, chief property economist at Capital Economics, said problems remained in the US market. There was an “unhealthy” reliance on institutional buyers snapping up cheap properties and it remained a difficult market for first-time buyers looking for a loan.
“The recovery needs to be seen in context of how far things fell,” he said. “But the strength in the market is boosting confidence and pulling people out of negative equity. It would be foolish to say the recovery can’t stall but the fundamentals are definitely in place.”