Home prices continue to rise
According to the Federal Housing Finance Agency’s (FHFA) monthly House Price Index (HPI), home prices rose 0.8 percent in May from April, and have risen 3.7 percent from May 2011. This increase reflects revised numbers from April which were reported to actually be a 0.7 percent increase from March, rather than the reported 0.8 percent.
While home prices continue to rise, the HPI is at May 2004 levels, and is at roughly 17 percent below its peak in April 2007, so while the news is good that home prices are slowly rebounding, they have a lot of ground to make up, so these signs of health should not yet be called a comeback.
Tight inventory, reduced sales
The FHFA HPI is calculated by using the prices of homes purchased with mortgages backed by Fannie Mae and Freddie Mac, which is a large portion of the market, but not a complete picture of all housing prices. The National Association of Realtors reports that tightening inventory levels have slowed sales, as prices of homes continue to rise.
“Tight inventory is a necessary step on the road to recovery,” said Trulia’s Chief Economist, Dr. Kolko. “As prices start to rise, buyers get impatient but sellers want to hold off. Longer-term, rising prices will encourage new construction and lift homeowners above water, both of which will bring more homes onto the market and increase inventory. But inventory has to shrink first before it expands.”
Additionally, Trulia reports that searches from foreign buyers are down ten percent, but the Eurozone crisis still has American real estate looking like a safer investment, so interest continues. While foreign investment is not the only means of salvaging the housing market, it is helpful to propping up the sector in a meaningful way rather than artificially.
Housing has a long way to go, but for the millions of homeowners that are underwater, increasing values and prices are a welcome sign, and it appears housing may be beat up, but finally has a pulse. We’ll see what happens next.