Average home prices in the Chicago Metropolitan area rose 2.7% in the last month, a story echoed in many cities across the country after the release of the , the latest Standard & Poor’s/Case-Shiller home price index. According to the index, Home Price Indices rose in July with both the 10- and 20-City Composites and all 20 cities included in them rising for the third consecutive month. The 10-City Composite Index was up 1.5 percent over June numbers and the 20-City Composite rose 1.6 percent. It was actually the fourth consecutive months that prices had increased for the Composites and all the cities except for Detroit that had fallen in April.
Once again, this is an element to a long list of factors that have contributed to the promising housing recovery. In addition to rising home prices this spring and summer, new building starts, lower levels of housing inventory, and declining foreclosure sales have, optimism is starting to rear its head from the cover of safety. The increasing volume of good news, for those watching the market for signs of recovery after the recent housing crisis, is starting to experience some contagion and willingness to shake off the recent economic down turn. In fact, most economic measures are now showing promising signs toward a recovery in the broader economy, after reports on consumer confidence, which had been lagging behind the rest came in higher than expected. According to reports released yesterday,the consumer-confidence index increased to 70.3 in September, the highest level in seven months, up from a revised 61.3 in August and higher than an expected level of 60.6.
So, is it time for smooth sailing in the housing market now? While all the good news calls for celebration, there is still some pessimism that the trend towards recovery cannot hold up unless the high unemployment rate lets up. Low employment and good primary jobs are driving forces in a healthy real estate market and economy. If people do not have the security of employment and stable income, they do not spend money and they do not invest. These two activities are essential in creating demand for real estate and demand for retail goods throughout the economy as a whole. Also, there is fear held by some that stringent regulations introduced after the crash of the housing market have left many Americans, particularly first-time homebuyers unable to qualify for a mortgage, let alone accumulate the large down payments required by banks if they do not opt for an FHA mortgage.
The Federal Reserve has taken steps to stimulate lending (historically low interest rates) and encourage home sales (pressure on GSEs to handle the shadow inventory as well as working with banks to address short sales in lieu of foreclosures) until the economy and employment improve, but it is unclear if this will be enough to give the boost needed towards the complete recovery we are all hoping for.
Michael Hobbs, SRA, LEED GA, PahRoo Appraisal & Consultancy