America's housing recovery gathers speed
Feb 04, 2013
American house prices are growing at the fastest annual rate since before the crash in 2006. That’s according to the widely watched Case-Shiller index of national house prices, which covers 20 cities. It showed that prices were up 5.5% year-on-year in November, although prices are still 30% off their peak. #
In 2012 as a whole, sales of new houses jumped by 20%, the fastest yearly rise since 1983. Combined sales of new and previously owned houses gained 9.9%, the best result since 1998. Spending on residential construction has reached an 18-year high.
What the commentators said
With prices up for ten successive months and gaining momentum, the recovery from the crash now looks well established. Prices are set for further gains. As Bloomberg.com pointed out, mortgage rates are historically low.
While many homeowners who might like to move or remortgage are still in negative equity, the gradually improving economy and high rents are stoking demand. Rising prices provide further impetus: “nothing pulls people into the market faster than the thought that prices will rise further”, said Ian Shepherdson of Pantheon Macroeconomics. Supply has dwindled: the number of previously owned houses for sale is at an 11-year low.
The housing rebound means that the sector has finally become a tailwind for the economy, but it’s not as powerful as it was. Housing construction as a share of GDP reached 6% in 2007; now it’s 2.2%.
The wealth effect helps, as rising prices make consumers feel richer, but this is being offset by rising taxes. Consumer confidence has fallen to a 14-month low. The housing boost, said Agustino Fontevecchia of Forbes, will not translate into pre-crisis growth any time soon.