Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=209768
Story Retrieval Date: 7/29/2014 3:52:50 PM CST
The 20-city composite index has been extremely volatile since the millennium.
U.S. home prices up, but not in Chicago
U.S. home prices rose in August by the largest amount in two years, another sign the economy is improving, Standard and Poor’s reported Tuesday. But the good news did not extend to Chicago, where prices continued to decline from last year.
The S&P/Case-Shiller index of property values in 20 cities increased 2 percent from August 2011, after rising 1.2 percent in July, marking the highest year-to-year gain since July 2010. The increase was slightly above the 1.9 percent projected median forecast of economists surveyed by Bloomberg.
The 10-city index rose 1.3 percent for the year. Both the 10-city and 20-city index were up nearly 1 percent from July.
With the Federal Reserve promising to keep interest rates low during its latest Federal Open Market Committee meeting Sept. 13, the housing market will likely continue to improve and gain momentum, economists say.
“Residential investment will continue to add to overall GDP making a consistent contribution in the quarters ahead. We’ve seen those numbers increase on a consecutive basis now for six quarters and we think it will remain,” said Anika Khan, an economist for Wells Fargo.
David Blitzer, chairman of the Index Committee at S&P Dow Jones Indices, agreed: “Home prices along with other housing data such as starts, sales, inventories, etc. indicate that housing is in a recovery mode and is contributing to the economy and will boost economic growth.”
Single-family housing starts are up 43 percent from last year and the inventory of homes for sale is steadily declining across the country. These recent statistics, combined with incredibly low mortgage rates, are likely to spur further recovery in the housing market.
Three cities saw year-over-year declines in home prices during August: Chicago, New York and Atlanta.
Chicago saw a monthly increase in overall home prices, up 0.7 percent in August from July, but prices fell 1.6 percent from August 2011. The metropolitan area, however, continues to feel the impact of a high number of foreclosures.
New York home prices posted a negative return of 2.3 percent while Atlanta’s prices posted a negative– return of 6.1 percent. Atlanta also continued to report average home prices well below January 2000 levels.
On the other hand, Phoenix posted the highest annual improvement with an increase of 18.8 percent.
Nineteen of the 20 cities had monthly gains from July, and, for the fifth straight month, both composite indices posted monthly gains.
Equity markets in the U.S. are closed Tuesday as a result of Superstorm Sandy. This was the first two-day shutdown of the New York Stock Exchange since 1888 for weather-related reasons.
Sandy’s effect on home prices cannot be determined until the extent of the damage is known, Blitzer said. Michael Englund, chief economist for Action Economics, thinks the storm will have little permanent impact on housing prices.
“There should be no meaningful impact,” he said. “The storm may have disrupted transactions underway, hence impacting October existing home sales and November new home sales, but this should have a minor price impact.”
Englund added that the home prices are still 5 to 10 percent below levels that would demonstrate a “clear housing market recovery.”