US House Price Strongest Since 2006

The housing market is an indicator of a nation’s confidence. When people are worried about job security and their ability to pay a mortgage, the number of houses sold (and price) declines, with people needing a compelling reason to commit to a move.

According to the latest Case-Shiller index, US house prices have seen a 5.5% price increase, year-on-year, in November 2012; the steepest increase seen since the onset of the global financial crisis in 2006. The index surveys house prices in20 cities and the only place to see a fall was New York where prices declined by 1.2%. Some rises were striking: prices in Phoenix, Arizona, saw a 23% increase and both Detroit and San Fransisco saw hikes of 10%. However, whilst the rate of increase (on average) is at its highest level since the crisis struck, the cost of homes is still 30% below the market peak. This either represents great value right now or a long-overdue correction in property values, depending upon how you see these things.

The volume of house sales and new construction remain well below the long-term average, reflecting the depth of the global financial crisis. However, the inventory of unsold homes has returned to pre-crisis levels.

Other data indicates that US consumer confidence suffered a setback in January; the Conference Board’s Consumer Confidence Index fell from 66.7 to 58.6, a sharper fall than many had anticipated. Analysts have attributed this to the effect of higher payroll and income taxes which have come into force in the wake of the last-minute “fiscal cliff” agreement. That agreement avoided harsher increases in tax and spending cuts which would have automatically triggered had now deal been reached. Time is running out for politicians to come to a compromise on spending cuts which was deferred for two month in the agreement.