Home prices are rising, experts say, but not as much as some reports may suggest. And to maintain a realistic view of any real-estate recovery, it may be wise to err on the conservative side.
Prices rose by 1.2% in July over the year-earlier period, and 1.6% over the previous month, according to the S&P/Case-Shiller home-price index released Tuesday. Housing analysts are generally greeting this as good news, but it looks pallid compared with the most recent National Association of Realtors survey, which came out last week.
That report estimated that the median sales price of existing homes rose 9.5% in the 12 months to August 2012, strongest increase since January 2006. July’s NAR report showed a similarly large gain.
“Both reports show that there’s definitely more buying and selling of houses,” says Susan M. Wachter, professor of real estate and finance at Wharton University of Pennsylvania. “The market is stabilizing.”
Minneapolis posted the strongest gain in the latest Case-Shiller home-price report, followed by Detroit, Chicago and Atlanta.
But some analysts say that the NAR report may present a too-rosy view of that market.
Case-Shiller house prices are historically slightly more conservative than price data from the NAR, mostly because the report adjusts for the size of homes being sold, while the NAR’s price index does not. The result is that NAR’s numbers jump when homes at the high end of the market sell strongly, and larger and more expensive homes have lately been selling particularly well, says Jed Kolko, chief economist at real-estate listing site Trulia. “This is why the NAR median sales price has risen so much more than other indexes.”
In fact, the market for those expensive homes has seen a big turnaround this year. In August, the sales of high-priced homes valued at between $250,000 and $750,000, as well as of those over $1 million, increased by some 25% on the year, according to the NAR. “The higher end of the housing market is playing catch-up,” Wachter says. “People are getting the prices they want.”
But fewer homes at the lower end of the market have been selling in recent months — meaning that housing’s recovery isn’t being felt as strongly in some of the communities where the slump hit the hardest. That’s why many economists currently see the Case-Shiller index as the more important gauge of the housing market’s overall health.
When midpriced homes start selling better, experts say that’ll be a sign that both the overall economy and the real-estate market are getting better. “People got slammed on equity during the recession,” says Stuart A. Gabriel, director of UCLA’s Richard S. Ziman Center for Real Estate. “But as the recovery continues more people will start to accrue equity in their homes and will be able to trade up.”
‘People got slammed on equity during the recession. But as the recovery continues more people will start to accrue equity in their homes and will be able to trade up.’
Stuart A. Gabriel, UCLA
The housing market may face some additional hidden headwinds. House prices have been helped in recent months by the dearth of foreclosure properties on market, but some analysts say that won’t last.
The number of foreclosure filings fell 15% in August from the year-earlier level, according to RealtyTrac’s most recent report, but that firm says this is due to delays in the foreclosure process. “We’re seeing recent increases in foreclosure activity in many states like Florida, Illinois, New York and New Jersey that will likely result in more distressed sales in the next six to 12 months,” says Daren Bloomquist, vice president at RealtyTrac.
For those with a deeper interest in real-estate minutiae, there are other key differences in the house price reports. The NAR measures prices on a monthly basis and gives estimates for the previous month, while Case-Shiller bases its estimates on a three-month moving average and has a two-month time lag.
The NAR covers 156 metro areas; Case-Shiller only tracks 20 cities. Case-Shiller tracks price changes of the same properties, which gives a more accurate picture, says Sofia Song, vice-president of real estate site StreetEasy.com. “But from an investor’s perspective both reports are worth reading.”
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This was drafted from an article written by Quentin Fottrell for www.finance.yahoo.com To see the original article Click Here