By NICK TIMIRAOS – WSJ
Home prices notched their strongest year-to-date gains since 2005, climbing 5.9% through July and signaling the housing market’s steady trudge toward recovery.
The rising prices in Tuesday’s Standard & Poor’s/Case-Shiller 20-city index could play a pivotal role in changing consumer sentiment toward housing and drawing in buyers from the sidelines. Another lure: Mortgage rates are falling to record lows after the Federal Reserve resumed buying mortgage-backed securities two weeks ago, helping to offset rising prices.
“Housing is no longer a negative. It is turning positive and we see the data reflecting that,” said Ivy Zelman, chief executive at research firm Zelman & Associates.
Home prices typically are strongest in the summer, the busiest season for home sales, before declining later in the year. But the 5.9% rise far surpasses the 0.4% gain seen through the same period last year and the 2% gain in 2010.
For the broader economy, the turn in housing could provide a much-needed boost if it continues. Rising prices could eventually lift consumer spending if homeowners begin to feel wealthier again. Housing construction, a big generator of jobs, also has the potential to play a major role in economic growth.
Rising home prices could shape voters’ thinking about the economy in the home stretch before the presidential election. National prices are at nearly the same level as when President Barack Obama took office 3½ years ago, though there is considerable variation from one city to another. The Obama campaign has argued that a series of policy interventions helped to arrest a steep slide in home prices, while his Republican challenger, Mitt Romney, has argued that government interference has delayed the recovery.
Mr. Obama’s political standing has solidified recently in tandem with rising economic optimism. In the latest Wall Street Journal/NBC News survey, Sept. 12-16, some 42% of voters said the economy would get better in the next 12 months, the largest share since late 2009. At the same time, Mr. Obama’s job approval rating hit 50% for the first time since March.
Construction of single-family housing in August reached its highest level in more than two years, though it is still far below its pre-bubble level, the Commerce Department said last week. It is set to report on August sales of newly built homes on Wednesday.
Rising prices largely reflect a dwindling number of foreclosed homes being sold by banks and other lenders as well as stronger demand for those properties from investors. Foreclosures and other “distressed” homes typically sell at larger discounts, and with fewer of those properties selling, prices are under less pressure.
But rising demand, especially at the low end, is putting upward pressure on prices as traditional buyers—as opposed to investors—feel more confident about jumping into the market.
“This is our third year where people have not seen big drops in housing. The cautious ones are feeling a little bit more comfortable,” said Jim Klinge, a real-estate agent in Carlsbad, Calif.
Compared with a year ago, prices in July were up in 16 of the 20 metro areas tracked. Home prices are up by 15% since the end of last year in Phoenix and by 10.1% in San Francisco. By contrast, prices were up by just 1.7% in the New York metro area, the smallest year-to-date gain of any of the 20 cities. Nationally, prices were up 1.2% from July 2011, the largest year-over-year gain since home-buyer tax credits fueled a burst of sales two years ago.
In some cities, diminished supply has given rise to bidding wars—and headaches for would-be buyers. “I’m very stressed over this because I see that the prices are rising, but there aren’t that many homes available,” said Joanna Welo, who is looking to buy a home in Elgin, Ill. Ms. Welo, who is 38 years old, said her teenage stepchildren moved into her two-bedroom townhome last year and they need more space.
“We are anxious to buy something,” said Ms. Welo, who has made offers on two homes so far this year. But she keeps wondering if banks are going to list more foreclosures, which is causing her to hesitate. “Maybe something that’s closer to what we are looking for is going to be released by the banks,” she said.
Price gains also could prompt some potential sellers to hold out for a better deal next spring. “When people ask us for candid advice about whether it’s a good time to sell, we say, ‘No, it isn’t. We think next year is a better time to sell,’ ” said Glenn Kelman, chief executive of Redfin, a Seattle-based real-estate brokerage that does business in 19 markets.
Some economists question whether the budding housing recovery is sustainable, particularly when wage and job growth remain sluggish. While home prices typically weaken during the second half of the year, the pace of such possible declines depend largely on whether the pace of buying keeps up and how banks resolve their overhang of distressed loans that could become foreclosures.
If demand persists and supply remains in check, then “home prices are easily past their bottom and are approaching their self-reinforcing portion of the cycle,” Ms. Zelman wrote in a note to clients this month.
However, headwinds could keep a lid on rapid price growth. Millions of homeowners owe more than their homes are worth and can’t sell their properties. That has frozen the important “trade-up” market—in which buyers move to bigger properties—in many regions hit hardest by the housing bust. Prices nationally are down by 30% from the peak seen during the housing bubble, and hovering around levels last seen in mid-2003.
Many would-be buyers have too much debt to qualify for a mortgage, and lending standards remain tight. Conservative appraisals also are snarling deals. Dave Bernhard, a 51-year-old engineer for an aircraft company, offered to pay $495,000 this summer for a home in Lake Forest Park, Wash., that overlooks Seattle’s Lake Washington.
An appraiser said the three-bedroom home was worth only $400,000, and because his lender wouldn’t allow a second appraisal, Mr. Bernhard backed out of the deal. His real-estate agent, Mark Corcoran, said the home went under contract a few weeks later with a different buyer after a new appraisal came in at $493,000.
Mr. Bernhard, meanwhile, is under contract for a $400,000 home in Mukilteo, Wash. “I am waiting with bated breath to see where that appraisal comes in,” he said.