Rising Home Prices Brighten Economic Outlook describes a developing good news story about the economic progress we're making:
"They’re back! Home prices, that is.
Two reports out Tuesday confirm an uptrend in home prices. The S&P/Case-Shiller home price index of 20 major cities increased 1.2% in the 12 months ended in July, beating expectations. Later in the day, the Federal Housing Finance Agency
reported its measure of U.S. home prices increased 0.2% in July over
June. That rise capped off seven consecutive monthly gains.
To be sure, real estate values aren’t soaring as they did during the
housing boom, and the level of prices remains about 30% below their 2006
highs, according to S&P data. But you have to crawl before you can
The news has to bring joy in the hallways of the Federal Reserve. That’s because rising home prices bring a hat trick of benefits to the economic outlook.
First and most obviously, rising prices indicate the housing market
is in better balance. The supply of homes has shrunk considerably since
the worst of the housing recession, while low rates and somewhat better
job markets have lured in more buyers. A relatively low level of
inventory coupled with rising demand will support greater homebuilding
in the future, a plus for real gross domestic product.
Second, better values mean fewer homeowners remain underwater on
their mortgages. Positive equity makes defaults less likely. That’s a
plus for banks’ balance sheets.
Lastly, consumers feel more confident and wealthier if their homes aren’t losing value like a sieve leaking water.
Better news on real estate could explain why surveys of consumer
confidence posted better-than-expected readings in September–even as
other data for this month, such as factory surveys and weekly jobless
claims, remain weak.
Happier, richer consumers are more willing to spend–a trend sure to hearten central bankers.
Economists at Deutsche Bank call homeowners’ equity
“the biggest driver of household buying power.” By their calculations,
home equity grew by $827 billion in the four quarters ended in the
second quarter of 2012, the largest year-over-year increase since 2005.
Coupled with positive household cashflow and better credit
conditions, rising home equity should support real consumer spending at
about a 2% pace–as long as gasoline prices don’t spike, the DB
“While hardly robust,” they write, “[the pace] will be enough to
assure further modest expansion in overall real GDP growth and help
minimize recession risk.”"
While Happy Days may not be here, at least happier days looks like they are.
We have a long way to go, but we're clearly headed in the right direction.
As housing sales and prices improve, even if slowly, everything else will get better, too.
So let's pay continuing and close attention to housing. It will slow during the fall and winter, of course, but perhaps it's building a base to perform solidly next spring and summer and in the years to follow.
If so, that's good news for everybody.