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A for sale sign is seen in front of a home in Los Angeles. The Case-Shiller index of home prices for November reported that prices in L.A. rose by a decent margin in November.
Standard & Poor's Case-Shiller Home Price index for November released Tuesday and the news for Los Angeles is...about what it's been for the past year of reports from the closely monitored composites of housing prices in major U.S. metropolitan areas.
Los Angeles is included in both the 10- and 20-city Case-Shiller composites, which lag the market by two months and represent a three-month moving average of prices. That's why we're just getting November, even though it's now almost February.
L.A. home-price gains were modest from October to November – 0.4 percent, down slightly from the September-October gain of 0.6 percent. In terms of the overall index, however, Los Angeles beat the year-over-year average for November, with a 7.7 percent increase versus 5.5 percent for the full 20-city composite.
Buyers are looking to buy housing again. And according to the California Association of Realtors, they expect prices to rise.
It looks like the pendulum has swung back to the optimistic side for California home buyers. The California Association of Realtors released a study Tuesday showing that buyers are increasingly confident prices will go up in the future.
Which raises an obvious question: Are buyers in the state being too optimistic about rising prices, after being excessively pessimistic about prices falling in the aftermath of the housing bust? When the pendulum swings back, it often swings too far.
About 25 percent of the 800 home buyers surveyed by the trade organization think prices will be higher next year. That’s more than a threefold increase over what buyers said in 2009, in the depths of the housing crisis.
But that pales by comparison with the five-year and 10-year outlook. For those periods, home buyers expect 41 and 73 percent price increases, respectively. Clearly, there's a high probability that prices will be higher a decade from now than they are today. There's a little thing called inflation, after all, which typically runs at about 2-3 percent per year and, absent big upticks in home prices, provides the steady, reliable asset appreciation that homeowners buying for the long term are looking for. They don't call real estate a hedge against inflation for nothing.
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Homes in Santa Clarita, California. The August Case-Shiller index shows prices moving back to 2003 levels.
It might be safe to call a housing bottom at this point. The monthly Case-Shiller home prices index has just come out for August, and it shows prices increasing in 19 of the 20 cities the index tracks.
This is from the release:
The 10- and 20-City Composites recorded annual returns of +1.3% and +2.0% in August 2012 – an improvement over the +0.6% and +1.2% respective annual rates posted for July 2012.
For Los Angeles, the story is much the same as it has been for the entire year so far: slow and steady progress. The August increase exactly matched the July increase, at 1.3 percent. April, May, and June were all higher, but only in May did the city exceed a 2-percent gain.
Although compared with last August (the Case-Shiller data lags by two months, which is why we're getting August numbers in late October), the situation is markedly improved over July. Los Angeles saw a 2.1 percent increase year-over-year for August; in July, prices only increased by 0.4 percent.
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A sign is seen outside of a KB Home sales center in Richmond, California. A lack of housing supply in the Western U.S. is spurring homebuilders to start building again.
The National Association of Realtors (NAR) has released its pending home sales index for August. The index fell a bit from July but is up more than 10 percent from last August.
That's the national picture. But in the West, the story is...well, distorted. The July-August decline was more than 7 percent, and the year-over-over year was more than 4 percent. What's to blame? A lack of housing inventory, according to the NAR.
I've been noting this trend often here at the DeBord Report. It's both good and bad. Good because a lack of supply to meet demand is encouraging homebuilders to...build! And that means unemployed construction workers have a good chance in the future to be not unemployed. But it's bad because the lack of supply, combined with historically low interest rates, is driving up prices. And it's dragging down pending sales — because there just aren't enough homes to be pending a purchase!
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A construction worker on the top of a home under construction at a new housing development in Petaluma, California. Sales of new homes have been rising, as have prices. Meanwhile, interest rates are low. But that doesn't mean it's a good time to buy.
The Commerce Department released data on August new homes sales today. Bottom line: sales were flat from July to August, but well up over last year: 18 percent. That sounds great, but there are several other factors to take into account. First, the latest Case-Shiller index provides strong evidence that housing prices in the U.S. are forming a bottom (don't get too excited — we're only back to 2003 levels, even with hard-hit regions like Phoenix posting double-digit price gains).
Second, housing inventory in Southern California is tight. The supply of foreclosures coming to market is being reduced, and during the downturn, homebuilders didn't do much building.
Third, that lack of supply is colliding with a surge in demand, as buyers decide to take advantage of low prices and historically low interest rates. The interest rates are the Federal Reserve's doing; the central bank wants people to buy houses and bid up prices to get the housing market back on its feet and restore equity appreciation to borrowers who now owe more on their mortgages than their homes are (for the time being) worth.