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IT’S HOUSING-BUBBLE GOOD!

The Housing Hour February 26, 2013


IT'S HOUSING-BUBBLE GOOD

The housing market recovery picked up steam as prices shot up 7.3% in 2012, according to a closely-watched reading released Tuesday.

The report from S&P Case-Shiller covered home prices across 20 major housing markets nationwide in the final three months of the year. It comes ahead of a government report due later Tuesday which is expected to show a continued rise in new home sales.

The home price increase marks the third straight quarter of year-over-year gains in prices. Before the market began to turn around, there had been only two quarters over the previous five years that showed improved pricing. That short-term blip was caused by a temporary home buyer’s tax credit that expired in 2010.

This time the improvement is driven by fundamental factors, including near record-low mortgage rates, a drop in the number of home foreclosures, a tight supply of homes available for sale, and an improvement in the overall economy, including a lower unemployment rate. The resulting rise in home prices is the biggest annual increase posted since the second quarter of 2006, near the height of the housing boom.

Related: Housing – how to play the rebound

The rise in home prices can provide a lift for the economy as it increases household wealth and allows homeowners who had previously owed more than their homes were worth to refinance their mortgages, putting more money in their pockets.

Home builders are picking up the pace of construction in response to the recovery, as they filed for the most building permits in more than four years in January. Stocks of major home builders, including KB Home (KBH), D.R. Horton (DHI) and Toll Brothers (TOL) have been steadily rising in recent months on the improvement in the market.

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