Home Prices Post Biggest Gains Since '06

NEW YORK CITY-Home prices in September posted double-digit gains year over year, S&P Dow Jones Indices said Tuesday. The S&P/Case-Shiller Home Price Indices showed the biggest increases in more than seven years.

The S&P/Case-Shiller US National Home Price Index, which covers all nine US census divisions, recorded an 11.2% gain in the third quarter over Q3 2012 and a 3.2% increase over Q2 of this year. For September, the 10- and 20-City Composites posted annual increases of 13.3%. The data reflect both single-family homes and for-sale apartments.

“The second and third quarters of 2013 were very good for home prices,” says David M. Blitzer, chairman of the Index Committee at S&P Dow Jones Indices. He notes that the National Index's 11.2% Y-O-Y increase represents “the strongest figure since the boom peaked in 2006,” while the 10- and 20-City Composites made their best annual showing since February of that year.

“Twelve cities posted double-digit annual returns,” observes Blitzer. Regionally, the West continues to lead with Las Vegas gaining 29.1% year-over-year, followed by San Francisco at 25.7%, Los Angeles at 21.8% and San Diego at 20.9%.

“San Francisco and Los Angeles showed their highest annual returns since March 2001 and December 2005,” Blitzer says. “Although Chicago has not reached double-digit growth, the city recorded its highest year-over-year gain since November '05.”

Blitzer points out that the strong price gains in the West are “sparking questions and concerns about the possibility of another bubble. However, the talk is focused on fear of a bubble, not a rush to join the party and buy.”

Further, he says, “other data suggest a market beginning to shift to slower growth rather than one about to accelerate. Existing home sales weakened in the most recent report, home construction remains far below the boom levels of six or seven years ago and interest rates are expected to be higher a year from now.”

That being said, the Commerce Department said Tuesday that residential building permits rose 6.2% in October to an annualized 1.03 million, the highest level since 2008. Numbers on actual housing starts will be released next month.

“Housing continues to emerge from the financial crisis: the proportion of homes in foreclosure is declining and consumers' balance sheets are strengthening,” Blitzer says. “The longer-run question is whether household formation continues to recover and if home ownership will return to the peak levels seen in 2004.”