The Housing Sector’s Recovery Has Been Weak, Despite Low Interest Rates

The S&P Dow Jones housing price indexes suggest a slowing in the US housing recovery, if not a complete flattening out in the momentum.

As the data for August indicate, house price increases from a year earlier have slowed in virtually all major American cities. The data also indicate that 10 American cities experienced declining housing prices over the twelve months.

David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices asserts that “There are no signs that the current weakness will become a repeat of the crisis, however. In 2006, when home prices peaked and then tumbled, mortgage default rates bottomed out and started a three-year surge. Today, the mortgage default rates reported by the S&P/Experian Consumer Credit Default Indices are stable. Without a collapse in housing finance like the one seen 12 years ago, a crash in home prices is unlikely.”

The first chart below focuses on house price changes, the second chart simply focuses on house price levels.

In many respects, actual housing prices are even more important to homeowners than the momentum in house prices.

As the previous chart shows national housing prices, as well as the aggregates for 10 cities and 20 cities, are all somewhat higher than their 2006 peak which preceded the financial meltdown.

The following table indicates the housing boom/bust peaks and troughs for the three composites along with the latest index levels and percentage changes from the peaks and troughs

In the case of national average house prices, the increase from the 2006 peak was 11.5%; but for the 20 and the 10 city aggregates, the increase above previous peak was only 3.5% and 0.4% respectively.

In other words, it is clear from the price data that the housing recovery from the 2012 trough of the US housing cycle has been quite substandard.