If you haven’t noticed here locally, the housing market has really changed. A client told me of a house they tried to purchase in the Detroit suburbs that had 70 offers last week. It was just two or three years ago when you couldn’t give these places away.
A recent well-known gauge for housing, the S&P/Case-Shiller 20-City Composite Home Price Index, which was released in May, posted the biggest gain in seven years.
The 20-city index--one of several S&P/Case-Shiller housing indices--showed a 10.9% gain between March 2012 and March 2013, the highest increase since 2006. In addition, all 20 cities tracked by the index had gains for three straight months. But not all markets are equal. Consider that San Francisco and Phoenix saw large price jumps of more than 20%. However, New York and Boston had smaller gains of 2.6% and 6.7%, respectively.
Also consider that all economic assets are eventually just a supply/demand equation. Prices should be rising given the low supply of homes, less new construction, relatively low prices, and low mortgage rates.
As for the economy as a whole, rising home prices often serve as an indicator that the economy is performing better since it generally demonstrates increased consumer confidence. And while this latest report is good news for homeowners looking to sell, it also provides welcome news to underwater homeowners who may now see an increase in their home equity.
Another gauge of the housing market is that a large number of institutional investors are buying properties to rent—suggesting that there is still a ways to go in terms of a full-fledged housing recovery.
You may hear people worry that another housing bubble is in the cards. Well not so fast! Consider that this economy is built on different terms than the one that led to the housing bubble burst in 2006. Those differences include a tighter mortgage lending environment and houses that may still be undervalued at prices that are significantly lower than they were at their 2006 peak.
Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc. Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions. In 2012 and 2013, Matt was named to the Five Star Wealth Managers list in Detroit Hour magazine.
Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.
The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.