House Prices Bump Up

If you believe that one of the depressing factors in recent years has been the deflation of home prices and along with it the erosion of consumer confidence and thus spending, this morning’s news from CoreLogic will be welcome. Home prices jumped 8.3% last year, the fastest rate since 2006. Of this gain only 0.4% came in December, but the annualized gain is a healthy reminder that, despite all the angst in our daily media and despite the total lack of action in Congress, some aspects of the economy are showing signs of life.

December’s relatively flat price index will probably be followed by similar results through the rest of winter, but it likely that we will see 2013 return a solid price gain also.

A key aspect of the CoreLogic data is that 46 out of 50 states saw price increases meaning that the gains are sufficiently widespread to allay fears that they represent nothing more than a bounce back in the states hit most by bubble induced speculation. Although I must admit that Arizona’s 20.2% gain last year – the most rapid anywhere – is exactly that.

Another key fact from the report is that we are still some 26.9% down from the absurdity of the April 2006 peak in prices. So there is a long way to go before we see prices back at those levels.

Driving the bump up in prices are a medley of basic driving forces. Mortgage rates are still at historic lows; the depressing effect of foreclosure has abated; the number of distressed properties has fallen; and, more basically than all these, employment has picked up sufficiently to lift consumer willingness to borrow and commit to long term plans. Since all these factors will remain in place this year, I see no reason for prices to falter. Which, given the central role home ownership plays in middle class financial life, is a good thing.