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Wednesday, May 22, 2013
Wednesday, May 1, 2013
The Slowly But Surely Price Creeper
Yesterday, the S&P
Case-Shiller report was released.
The S&P/Case-Shiller
Home Price Indices are the leading measures for the US residential housing
market, tracking changes in the value of residential real estate both
nationally as well as in 20 metropolitan regions.
Home prices in all 20
metro areas included in the index rose for the second month running. Phoenix led, with a 23% annual increase
followed by San Francisco (18.9%), Las Vegas (17.6%) and Atlanta (16.5%). Los Angeles came in with an annual increase
of (14.1%). Still, Robert Shiller, co-creator
of the index, is cautious. “There’s a lot of excitement in the housing market
now but it might be just short term,” he tells The Daily Ticker.
In case you didn’t know, Robert
Shiller, leading economist and contributor to the Case-Shiller report correctly
predicted the recent housing bust and is highly respected. Because of this he tends to be subtle with
his responses and only hints at what he truly feels.
When asked where this all leaves the housing market 10 years from now, Shiller says home prices will be “about where they are now” after adjusting for inflation.
That is important to take
note of because ‘about where we are now, after adjusting for inflation’ could mean
a world of difference. Inflation is a rise in the
general level of prices of goods and services in an economy over a period of
time. Consider the fact that interest
rates will not stay at record lows for long since the Feds will eventually stop
buying bonds at its current levels to keep the mortgage rates low, so increased
monthly payments alone will leave buyers out.
Then there’s the home prices that will be adjusted upwards for inflation
and in theory be around where we are now.
Inflation is often offset by rising employee wages so the effects of the
rise in prices will be unnoticed.
However, lately and forward looking, do you think there will be many pay
raises?
So in reality, home prices
will not be around where they are now after adjusting for inflation for the
average buyer if their income isn’t going to rise fast enough to catch up with
inflation. Therefore in essence home
prices will rise, but along the line of inflation.
The good news is home
prices won’t be an exploding bubble that will bust so that should be reassuring
for buyers and homeowners to know that their home will be on a stable rise
through the next 10 years. After all, it
is still a good time to buy or move up given the low interest rates and steady
but rising home prices.
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If you have any questions, feel free to contact James Y. Kuang at (626) 371-5662 or by email - james.kuang@coldwellbanker.com
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