S&P/Case-Shiller reported house prices rose more than expected in April. The 12.1% year-over-year increase is the latest rise in seven years.
The first Great Graphic, from Bloomberg, shows this. This is important for a number of reasons. The one that strikes us as the most significant is the wealth effect of the rise in house prices.
Broadly understood, this is not simply people who own houses feel wealthier, but also the increase in prices also corresponds to a decline in foreclosure rates and a reduction in the number of households that have negative equity (which is when one owes more on their house than it is worth).
The second graph shows the S&P/Case-Shiller index of house prices. It puts the year-over-year change in a large context. House prices are just above the trough and have barely recovered much of the ground lost when the bubble ended. The house price index is near levels seen in late 2003.
There is concern now that the back-up in interest rates, especially mortgage rates, will cool the housing market. It may, but there are a couple mitigating factors. First, the fear of rising interest rates is sparking a flurry of activity, according to a unscientific survey of some mortgage brokers. Second, the problem before was access to credit more than the price. The broad economic recovery, including employment, and the rise in home prices, maybe helping ease up the availability of credit. Except for the worst of the crisis, mortgage rates in the U.S. are still low.