U.S. home prices posted year-over-year gains for the fourth consecutive quarter as prices rose 10.2% in the period ending in March, according to the S&P/Case-Shiller national index.
The index posted its highest annual returns since 2007, according David Blitzer, head of S&P’s index division.
But the strong gains over the past year may be a bit of a statistical mirage, according to Robert Shiller, a Yale economist and co-founder of the index. “Foreclosure sales are down, so naturally [price] indexes that include foreclosures are up,” he said.
Foreclosures sell for less than comparable non-foreclosure properties, so with fewer of them selling, home prices will show gains.
Eventually, the percentage of distressed properties being sold will stabilize near their historic norms and will play less of a role in future home price comparisons. When that happens, price gains will flatten out a bit.
There’s another factor arguing against continued price gains, according to Shiller. Home prices are already at what he considers “normal” levels, adjusted for inflation. Even the steep housing downturn only took prices to where they would have been if they hadn’t skyrocketed during the bubble.
Index co-founder Karl Case worries about the low number of housing starts recorded this month. That’s a possible sign that the economic recovery is flagging, which would slow home sales as well.
“New construction is a big deal and starts are the most important number,” he said. “It goes right to the GDP.”
Both economists, however, are still cautiously bullish for two main reasons. First is the fact that near-record low mortgage rates have made home buying more affordable. The second is all the pent-up demand in the housing market after years of sluggish sales.
Phoenix recorded the largest year-over-year price spike, with a 22.5% jump. San Francisco prices rose 22.2% and Las Vegas prices grew 20.6%. New York, at just 2.6%, saw a modest annual increase.