Article originally published at www.investmentcontrarians.com
The latest release of the S&P/Case-Shiller Home Prices Index is out, measuring data through July 2012. For the third consecutive month, all 20 cities recorded monthly gains in home prices. The 20-city average year-over-year gain was 1.2%. The numbers also show that single-family homes are in demand, which isn't new, as I've discussed the strength in homebuilders such as Toll Brothers, Inc. (NYSE/TOL) before.
In fact, the reports I've seen show that, in many markets there's a shortage of new homes, as the homebuilders are seeing multiple bidders and price improvements. These are all great signs that the housing market is starting to regain a solid footing. Note: this does not mean we will retake the peak in home prices anytime soon. In fact, I have argued in the past that home prices were artificially pumped up during the last decade, and it will take many years before the housing market overtakes those high levels.
What is important is that buyers feel secure that home prices won't collapse. In fact, we're seeing many markets experience strong gains in home prices. The Case-Shiller reports that San Francisco is up 20.4%, Detroit is up 19.7%, and Phoenix is up 17.0% from their respective lows.
As they say, the housing market is all about location. In areas of the country where the jobs market is growing, such as the high-tech or even the automotive sector, we're seeing a resurgence in home prices. The housing market in San Francisco is up almost five percent since last July, with Detroit up 6.2%.
These are not aberrations, but they are a sign that the housing market is getting back to a more normal supply-and-demand equation. In addition to these gains, which are a powerful signaling force to potential buyers in the housing market that home prices are starting to move back up slowly, we have the Federal Reserve pumping in additional funds to keep the mortgage-backed securities market well-fueled.
There's an old saying: "Don't fight the Fed." We know they want to keep borrowing costs low for some time. We know that when costs are low, this provides a floor in the housing market-everyone knows that. The real question is will the Fed remove this stimulus in time to prevent another housing bubble? We're obviously far away from bubble territory in the housing market, so that's a conversation for a later time.
All in all, the housing market is moving in the right direction; all 20 markets were up between July and June this year, and we're seeing some strong gains in home prices. With supply being short in several parts of the housing market, plus the Federal Reserve adding more liquidity, we should see stable levels with some additional gains for home prices over the next few years.