By Peter Ricci
With few exceptions, home prices have been on the rise through most of 2012, and in noticeable ways – the most recent Case-Shiller Home Prices Indices, which Standard & Poor’s released on Tuesday, reported that home prices were up 3.6 percent in 2012’s third quarter from a year ago, and in CoreLogic’s Home Price Index for September, prices were up 5.0 percent, with the anticipation of a 5.7 percent uptick in October.
But what’s behind this sudden increase in home prices? We’ve got three interesting explanations.
Three Simple Simple Explanations for Rising Home Prices in 2012
Reason Number One: Homes are Darned Affordable
You’d have to be living under a rock to not have noticed that housing affordability levels have skyrocketed the last couple years. As home prices fell during the housing downturn and renting prices increases, homes began to look more and more attractive to U.S. consumers – and the numbers are certainly on their side. According to a recent study by Trulia, owning is currently cheaper than renting in every major metropolitan market, a fact that has spurred on home purchases.
Reason Number Two: Bye Bye Distressed Sales
One of the seemingly eternal curses during the housing downturn was that of distressed property sales, which lingered in prominent communities and, through appraisals, damaged the values of adjacent properties. But now, distressed property sales are hard to come by, and not just because there are less of them occurring. Also, banks have been more proactive with foreclosure alternatives, and the downward pressure on prices has, as a result, lessened a bit.
Reason Number Three: Low Housing Inventories
As The Wall Street Journal‘s excellent Nick Timiraos pointed out in his own story on home prices, housing inventories are at epic lows in the current market, with new homes at a 50-year low (on account of homebuilders cutting back on, well, building) and existing homes at a 10-year low (on account of sellers waiting for prices to rise even further). So, as Timiraos writes, what has resulted is a classic case of supply and demand – supply is scarce, so demand has risen, giving way to rising prices, multiple offer situations and increasingly fleeting REO discounts.
The reasons may be varied, but they’ve all contributed to one central effect – home prices have been increasing, even in spite of traditional seasonal downturns, and they have many looking forward to 2013.