The Housing Recovery Continues, but for How Long?

This year the market has moved leaps and bounds towards a full recovery, and last Tuesday we heard even more good news. Two reports were released on Tuesday – the Federal Housing Administration’s house price index and Standard & Poor’s/Case-Shiller HPI – both suggesting continued improvement for home prices in the United States.

The FHA reported in their home price index that house price appreciation sustained throughout July, the 18th consecutive monthly price increase in the purchase-only, seasonally adjusted index, and up 1% from the previous month. This is up 8.8% from the year before and only 9.6% below its April 2007 peak.

The Standard & Poor’s/Case-Shiller HPI reported similar findings. While the twenty-city home price index only improved 0.62% in July, short of the anticipated increase of 0.8%, this marked the 18th straight month of improvement for this index as well. The index also reported a year-over-year gain of 12.39%, slighter higher than June, and the largest annual gain since 2006. Two of the largest gains were found in Las Vegas and San Francisco, where prices leaped 28% and 25% respectively from the year before.

While the two indexes show a positive gain in prices through July, it should be noted that the rate at which prices are increasing has slowed down. Fifteen of the twenty cities in the S&P/Case-Shiller index showed less appreciation in July than they did in June, but this is not necessarily bad news.

The market has made great changes in a very short period of time – especially the price of houses – which has led some to fear that the market is forming another bubble, but the recent reduction is not a part of a bubble. Instead, the reduction in appreciation shows that the market is normalizing, indicating that the recent growth can be sustained.
It’s probable that home value appreciation will continue to rise over the next few months, but at a slower rate, as more houses are put on the market and mortgage rates remain above their recent lows.

Have you noticed the reduction in home price appreciation? What are your thoughts?

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