According to CoreLogic’s just released Home Price Index Report, home prices in the U. S. increased by 12 percent nationwide compared to January 2013. Despite severe winter conditions afflicting much of the country, CoreLogic also recorded an increase of 0.9 percent in home prices in January compared to December. As CoreLogic’s chief economist, Dr. Mark Fleming, pointed out, “The last time January month-over-month and year-over-year price appreciation was this strong was at the height of the housing bubble in 2006.”
Still, home prices remain 17.3 percent below their peak in April 2006. The increases in home values are not evenly distributed. Twenty-two states and the District of Columbia are at or within 10 percent of their previous peak but Mississippi saw home values fall, the only state where prices dropped. Nevada had the biggest increase. Home prices there increased 22.2 percent year-over-year.
The report also looked at metropolitan areas. Two in California showed the biggest increases. The Riverside, San Bernardino, Ontario metro area saw prices zoom by 22.3 percent while in the Los Angeles, Long Beach Glendale metro prices shot up by 19.7 percent compared to a year before. In Southern California the rapid rise in prices is causing a change in the way people are buying real property. Historically, the region has been renowned as the epitome of suburban living, filled with single family homes fronted by lush lawns. For many prospective buyers, these homes are now too expensive, so they are turning to condominiums. According to DataQuick, in October 2013, sales of existing condos in Southern California increased 3.3 percent compared to a year before while previously owned single family home sales fell by 7.2 percent.
Even those iconic lawns are endangered by the region’s current drought. The Los Angeles Department of Water and Power is paying home owners up to $4000 to tear out the turf and replace it with drought tolerant plants. Still Los Angeles County continues to grow, topping 10 million people for the first time last year according to the California Department of Finance.
Home Price Rise Effect
There is one major change in consumer attitude compared to the last time housing prices increased. During the bubble many homeowners got second mortgages. With this cash-out financing, they spent the equity in their homes. These loans rose from $26 billion in 2000 to $321 billion in 2006. Economists estimated that every dollar increase in housing produced between 3 and 5 cents in extra consumer spending. When home values tumbled, many homeowners with second mortgages found that they owed more than their homes were worth. Although home equity lines of credit saw a resurgence last quarter, for every dollar increase in home value today, Amir Sufi, a professor of finance at the University of Chicago Booth School of Business, estimates that there’s as little as a penny of extra consumer spending.
For anybody who has considered buying real estate, this is an excellent time to buy. For those with great credit, at this writing, rates on a 30 year fixed rate mortgage are at 4.33 percent. CoreLogic predicts that when the numbers are in, last month’s national home price increase year-over-year will be even greater than January’s, reaching 12.5 percent for February. Remember that low mortgage interest rates are the result of the Federal Reserve Bank’s program of quantitative easing, buying up securities to lower the costs of borrowing. The process has already been cut back from $85 billion a month to $65 billion. In a January survey by CNN Money, most fund managers expect the stimulus to be withdrawn by the end of the year.
If you’re thinking of getting a home of your own, do your homework, collect all the financial data you need for the loan application and go for it before home prices rise further. With spring in the offing, the housing market will heat up. In fact, according to the Mortgage Bankers Association applications for U. S. home loans rose by a seasonally adjusted rate of 9.4 percent in last week in February.