National Housing Price Index up 10.5% from March 2012. Is this Another Bubble?

Even with unexpectedly strong increases in housing prices in the last 12 months, there’s still room for growth in the housing market. But how much?

The latest Core Logic Housing Price Index (HPI) data shows that national housing prices in March 2013 are up 10.5% from March 2012. After 19 months of consecutive decline in the year-over-year HPI, March 2012 showed a 1.13% increase over March 2011. For the last 13 months up until March 2013 that number has steadily increased to 10.54% based on the latest data. At first glance it may appear that we are seeing the beginning of another bubble, however appearances can often be misleading.

As Paul Diggle, Property Analyst for Capital Economics notes in the article, “…if house prices and incomes continued rising at their current rate, the house price-to-income ratio wouldn’t return to its long-run average until 2017.” It took the housing market 4 years to reach the dizzying heights of its peak just before the crash. This single year increase of over 10% is nothing compared to the unbridled increases we saw in the early 2000’s.

A quick look at CoreLogic’s data shows several states saw annual growth that EXCEEDED 10% for 3 consecutive years. Let’s take a look at an example of what that kind of growth means. A home  purchased in 2002 for $500,000, would be able to sell for over $665,000 by the end of 2005. Growth like that simply can’t go on forever. If the trend had continued that same house would be worth around $1.3 Million today. If that is the type of return on investment you’re looking for in the housing market then you need to reconsider your investment plans

Markets reward those with patience. Remember when the U.S. Stock Market was falling with seemingly no end in sight? Well that same market is once again back to its old value and reaching for a new high. And that is what is driving the housing market these days: patience. Long gone are the days of homebuyers expecting to sell their home a year after purchasing it for a profit. Instead a new kind of apprehension and respect for the market has settled in, and that doesn’t leave much room for those looking to squeeze quick profits from the market.

In a statement made 5/16/13 CoreLogic predicts, “Home prices projected to increase 3.9 percent annually over next five years, following a 7.3 percent rise in 2012.” That is exactly the kind of consistent and healthy growth we’ve been looking for from the U.S. housing market since the crash. With regular scrutiny of the CoreLogic data we will continue to track this trend as we wait and see if their predictions ring true.