WSJ.com
Home prices rose 3.6% in September from a year ago, according to the S&P/Case-Shiller
National Index out Tuesday. Prices are up 7% through the first nine months of 2012, which is the
strongest rise since 2005 and puts prices on a trajectory to beat even the most optimistic
forecasts from earlier this year. The gains also are broad-based, with the 20 cities tracked by the
Case-Shiller index—except Chicago and New York—showing year-over-year gains.
The housing turnaround has been a boon for real-estate brokers and home builders, some of
whom have seen their stock prices more than double this year. Retailers have seen a new stream
of customers ready to decorate, furnish and upgrade their homes while investors are spending at
hardware stores to renovate previously foreclosed homes. Banks, meantime, have posted record
mortgage profits amid high refinance volumes and stronger demand for new loans.
Beyond those direct benefits are a number of indirect effects. Rising home values make
homeowners feel better about their finances—making them more likely to spend and, with
interest rates low, more comfortable about taking on debt. An index of confidence released
Tuesday by the Conference Board rose to 73.7 in November, the highest level since February
2008.
“Housing’s share belies its importance to the economy,” said Joseph LaVorgna, chief U.S.
economist at Deutsche Bank . “The confidence effects are massive.”
Rising home prices are making consumers feel flush, which may eventually spur them to spend
more: New home-equity lines of credit are projected to grow by 22% this year to $77 billion, a
three-year high, according to Moody’s Analytics. “We can start to see the housing market as an
assist to our growth rather than an anchor,” said Frank Blake, chief executive of retailer Home
Depot Inc. on an earnings call this month.
Rising home values have given Clara Soh confidence about her finances—and she is spending
accordingly. The 35-year-old senior director at a pharmaceuticals trade group has spent the past
five years saving more and spending less. With interest rates low, she recently refinanced a
Portland, Ore., home that she has been renting out since her recent move to Washington, D.C.
That lowered her payment by $300 a month—while the home has gained $100,000 in value.
Now she plans to pay off her 30-year mortgage early and splurge a little: She recently spent
$300 on clothes, $1,000 on climbing gear, and $700 on a new bike. “I feel a little more confident
about the direction things are going. I have a little more of a cushion,” she said.
While rising prices now are driving the housing market forward, that couldn’t have happened
without a painful cycle of losses. Lower prices and rock-bottom interest rates have boosted
affordability. The average monthly mortgage payment on a median-price home in October,
assuming a 10% down payment, fell to $720 at prevailing rates, down from nearly $1,270 at the
end of 2005.
Rising rents and an uptick in household formation have ignited demand, which, in turn, has
pushed inventories of homes for sale to their lowest level in at least a decade. The upshot: More
buyers are chasing fewer homes, pushing up prices.
Real Estate, Once a Drag on Growth, Reverses Course as Other Sectors Tail Off
December 17, 2012 by Marty Tuominen
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