Three big sources of data hit the stands on Tuesday, confirming what most of us already know: Prices are going up, sales are strong, and demand is stronger than supply.
The bottom line of the latest S&P/Case-Shiller Home Price Index: Home prices were up 4.1% this March from last (a more typical rise is 1%). From the U.S. Census comes this (non)surprise: New-home sales were up 6.8% from March. The one tidbit of shift is that consumer confidence, which sagged in April, was peppy again in May: 95.4 from 94.3. Spring is in the air, and Americans are in the mood to buy.
More houses, yep, but still not enough to shift the supply-demand ratio, so expect more of this news: Home prices are likely going to climb for a while more, at least until new construction can alleviate some of the pent-up demand. The median price of new houses sold in April 2015 was $ 297,300; the average sale price was $ 341,500. Those prices are much higher, and soaring faster—a hike of 10.3% year over year—in San Francisco. While that’s no surprise, either, prices in Denver rose 10%, and 9.3% in Dallas. Here’s the breakdown of the 20 cities that make up the Case-Shiller Index:
But fear not—we’re not repeating the mistakes that led to the housing crisis of 2008 (though, maybe we’re making some new ones). As we noted last month, this news does not a bubble make—the inflation isn’t based on speculation or the granting of mortgages to folks who can’t pay them. Banks are far more cautious with their lending now, which is good news for them, and perhaps for the economy in general, but bad news for those who don’t have the capital or credit but are capable of making monthly payments anyway.
“People now make a habit of calling a bubble when prices go up faster than ‘normal,’” says our chief economist, Jonathan Smoke. “But sometimes price increases are just simple reflection of market dynamics.”