U.S. home prices hit a new high in October on a closely-watched index released Tuesday, while prices in the Atlanta area edged closer to their pre-recession peak.
The S&P CoreLogic Case-Shiller Indices report showed prices rose nationally by 5.6 percent in October compared to the same month a year ago. In metro Atlanta, prices for existing home sales grew by 6 percent in that time.
Metro Atlanta home prices are now near October 2007 levels, a time when prices were just starting their tumble from a pre-recession peak in July 2007. The housing collapse helped trigger the Great Recession, and the Atlanta area was walloped by foreclosures and plummeting home values that reverberated through the economy and also tanked local and state tax collections.
But home prices locally have marched steadily, if slowly, upward since their bottom in March 2012, as sales were propelled by low interest rates, a rebounding economy and job growth. But tighter lending standards, delayed purchases by would-be first buyers have been a headwind on the recovery of metro area prices.
Markets such as Boston, San Francisco, Seattle, Portland and Denver have already surpassed pre-recession prices, which, coupled with high rents, has raised concerns about home affordabilty.
Roger Tutterow, an economics professor at Kennesaw State University, said metro Atlanta’s price recovery is uneven, with many neighborhoods, particularly in the northern suburbs, long ago eclipsing their pre-recession peaks.
Tutterow said he expects the region as a whole to surpass its pre-recession high on the Case-Shiller index when December or January data is reported in the first half of next year.
Tight supply
The supply of available homes for purchase in metro Atlanta remains tight, raising prices in popular areas and frustrating some would-be buyers. Many young professionals who traditionally would buy first homes have stayed on the sidelines, either because of a financial barriers such as steep down payments and student debt or a preference for the flexibility of renting.
Rising prices affect even people with no plan to sell, boosting the so-called “wealth effect.” The term refers to higher asset values that can spur consumer purchases.
Yethome affordability is also emerging as an issue in parts of the Atlanta region, Tutterow said. That coupled with rising interest rates could help keep price gains in check in the months ahead.
“We have been expecting the pace of year-over-year increases to moderate. Candidly, it should moderate,” Tutterow said.
David M. Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices, said home prices and the broader economy “are both enjoying robust numbers.” But he said price gains that outpace both inflation and wage growth can’t be sustained.
Seattle, Portland lead
As prices rise and mortgage rates increase, housing takes a bigger bite out of households’ monthly budgets. Wage growth coming out of the recession, meanwhile, has been relatively anemic.
“With the current high consumer confidence numbers and low unemployment rate, affordability trends do not suggest an immediate reversal in home price trends,” Blitzer said. “Nevertheless, home prices cannot rise faster than incomes and inflation indefinitely.”
Seattle (10.7 percent), Portland (10.3 percent) and Denver (8.3 percent) posted the highest gains year-over-year in the 20-city composite index.
Svenja Gudell, chief economist at Zillow, said the current market is not the same as the frothy housing boom of a decade ago when loose lending standards and over-building helped inflate a bubble. She suggested tight inventory is a major ingredient in the post-recession rebound, and that affordability will continue to be an issue.
“More and better opportunities for American consumers means high demand for housing, and that demand is not being met by an adequate supply of homes for sale – and so prices rise,” Gudell said in a statement following Tuesday’s report.
“Rapid growth in home prices may not be welcome news for those struggling to save to buy a home, and coupled with rising interest rates in coming years, some consumers may begin to feel the pinch of worsening affordability, especially in pricier coastal markets.”
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What to know about metro Atlanta home prices
- Existing home sale prices in metro Atlanta have returned to October 2007 levels
- Prices are edging closer to the region's peak in July 2007
- Atlanta area prices reached the bottom in March 2012
- Rising prices and mortgage rates could be headwinds for further gains
Source: S&P CoreLogic Case-Shiller Indices
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