U.S. Home Prices See Highest Gains Since 2006

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Home PricesHome Prices Party Like it’s 2006

U.S. home prices saw their highest gains since February 2006 during the first nine months of 2013, according to new data from the S&P/Case-Shiller Home Price Indices.

The S&P/Case-Shiller 10-City and 20-City Composites were up by 13.6% for the period, versus the first nine months of 2012. Price gains did slow noticeably following the summer selling season: October 2013 saw only a 0.2% gain in these two key composites.

However, 2013 was a significant year for housing, and economic recovery overall. S&P/Case-Shiller data shows that U.S. house prices were back to mid-2004 levels as of October 2013. Most economists have said since the economic crisis that a recovery in housing was necessary before any truly robust and durable recovery could happen.

Now, it seems, that has happened. It is no surprise, then, that we’ve seen a slew of positive economic indicators since the third quarter of 2013. These include better-than-expected jobs data, positive near-term hiring plans among employers, and a fairly robust holiday retail season.

As we’ve noted before, the big unknowns in making 2014 housing predictions are interest rates, and where they’ll move next. So far, we’ve seen some substantial increases in 2013. Fed policy will certainly play a role in where interest rates move, but the latest evidence suggests that the Fed will have less control over rates than it has during the past five years.

A recovering global economy increases demand for credit, with market forces playing the master role in where rates move. Most experts are expecting U.S. mortgage interest rates to move higher in the new year. How much they move – and how much this movement impacts home sales and prices – is a matter of guesswork.

Past trends would suggest that moderately higher rates should take some steam out of housing, but we are in uncharted waters. The financial crisis – and the historically significant economic drama it brought on – makes predicting where housing will move next a bit of a sucker’s game.  Job growth, income growth and consumer sentiment will all play big roles in this year’s market as well.

 

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