Home prices on the rise: why that is good for US economy
Nationwide, home prices rose 3.6 percent in the third quarter compared with the same period in 2011, new data show. The jump points to a broad recovery in the long-sluggish housing market.
Home prices in the United States rose in September, confirming that low interest rates and declining foreclosures are helping to propel a broad recovery in the housing market.Skip to next paragraph
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Progress is visible in two newly released sets of numbers. The Standard & Poor's Case-Shiller index showed nationwide price gains averaging 3.6 percent in the third quarter of 2012, compared with the same quarter a year earlier.
In a separate report on Tuesday, an estimate of price changes from the Federal Housing Finance Agency (FHFA) said that US home prices have risen 4 percent over the past year, using the same gauge of comparing third-quarter figures for 2012 and 2011.
Both reports are watched closely by economists.
"Higher home prices are making a difference" for the housing market and the wider economy, Patrick Newport, a housing analyst at IHS Global Insight, wrote in an analysis of the numbers. "Higher prices are ... boosting home sales by nudging fence sitters, who up to now have been waiting for home prices to bottom out before jumping into the market."
Mr. Newport and other analysts cite several other ripple effects:
• The price gains have lifted more than 1 million homeowners "above water" during this year, so their homes are worth more than their mortgage debt, according to analysis by CoreLogic. This reduces the risk of foreclosure. Although delinquency and foreclosure rates remain high (as of June, 10.8 million borrowers had negative equity in their homes), the problems are in decline.
• The shift has improved overall household finances. As homeowning households feel rising net worth – or at least less fear of having an under-water mortgage – consumer confidence and spending get a boost. On Tuesday, a Conference Board survey of consumer confidence showed a rise in November to its highest level since February 2008.
• Homebuilders have reasons to boost construction, as they see rising prices and a declining inventory of homes for sale. After a recession-induced hiatus, any increase in home building adds to overall economic growth.
• The reduction in underwater mortgages makes it easier for people to move as they search for better jobs.
Of course, the flip side of rising prices is that potential buyers may see homes become less affordable. The good news for buyers, however, is that as banks see stronger pricing, they'll be more willing to extend credit. Low interest rates are good only if one can get a loan, and the Federal Reserve has expressed concern that credit conditions may be too tight in many cities.