Home Price Gains Keep Adding Muscle

NEW YORK CITY-The 10-city and 20-city S&P/Case-Shiller Home Price Indices posted their best year-over-year gains in more than seven years, S&P Dow Jones Indices said Tuesday. The results for May showed an 11.8% Y-O-Y gain for the 10-city index and 12.2% for the 20-city, the largest improvements in annual returns since March 2006. Prices for single- and multifamily homes across the US are now back at spring 2004 levels.

“Home prices continue to strengthen,” says David M. Blitzer, chairman of the Index Committee at S&P Dow Jones Indices. “Two cities”—Dallas and Denver—“set new highs, surpassing their pre-crisis levels, and five cities—Atlanta, Chicago, San Diego, San Francisco and Seattle—posted monthly gains of over 3%, also a first-time event.”

In keeping with the performance of Dallas and Denver, the Southwest and West saw the strongest Y-O-Y gains. San Francisco home prices rose 24.5%, with Las Vegas not far behind at 23.3% and Phoenix gaining 20.6%. Weakest of the gainers were New York City, up 3.3% Y-O-Y; Cleveland, up 3.4%; and Washington, DC, which rose 6.5%.

All 20 cities showed positive monthly returns for May. Of these, half—Chicago, Denver, Detroit, Las Vegas, Miami, New York City, Phoenix, Portland, Seattle and Tampa—showed acceleration between April and May. Miami and Seattle home prices saw their largest monthly gains since August 2005 and April 1990, respectively.

The S&P/Case-Shiller index results bore out the National Association of Home Builders' report earlier this month that builder confidence rose six points to 57 on the National Association of Home Builders/Wells Fargo Housing Market Index for July. “Builders are seeing more motivated buyers coming through their doors as the inventory of existing homes for sale continues to tighten,” NAHB's chief economist, David Crowe, said two weeks ago. “Meanwhile, as the infrastructure that supplies home building returns, some previously skyrocketing building material costs have begun to soften.”

In the view of IHS Global Insights, the inventory shortages are likely to get larger before getting smaller. “This means that home price gains in most cities and state are likely to remain strong for some time,” according to IHS' Erik Johnson.

When coupled with existing and new home sales that have hit four- and five-year highs, respectively, the strong upward trend in house prices make clear that the long-awaited housing recovery is in full swing,” says Johnson, senior US economist at IHS. “We expect housing to remain a key driver of growth for at least the next couple of years.”