Holiday Cheer: House Prices Rise 4.3% YoY in October, Mortgage Rates Near All-Time Low

The S&P/Case-Shiller index of property values in 20 cities increased 4.3 percent from October 2011, the biggest 12-month advance since May 2010. The median forecast projected a 4 percent gain. On a month-over-month basis, house prices rose 0.48% in October. I should not that these are seasonally adjusted numbers. On a non seasonally adjusted basis, house prices actually fell slightly in October by -0.1%. oct12-case-shiller

The Case-Shiller 20 (green), FNC 30 (yellow) and FHFA Purchase Only (purple) indices are all showing house price recovery from the the disastrous housing bubble.

Of course, The Federal Reserve and the fiscal fiasco in Europe have resulted in lower mortgage rates helping to produce a housing recovery.

A vexing problem for The Fed, however, is that the spread between mortgages rates (primary) and MBS rates (secondary) remains so high. Note that the spread prior to 2008 was near zero, but has remained high since November 2008.

On a metro level, Phoenix was up +21.7% YoY for October. This contrast with New York City which declined -1.2%. And “Sweet Home” Chicago was also down -1.3%. But most metro areas were up YoY.

Washington DC, on the other hand, is closer to the national trend of having a wave-like seasonal trend in house prices after the housing market bottomed out after the bubble burst.

While the Case-Shiller numbers were a good Holiday pick-me-up, all the news is not so rosy. Apparently, no angels will receive any wings this Christmas. President Obama returned from Hawaii by himself and I doubt that he will suggest dramatic spending cuts. Nor will Congress.

$20+ Trillion in debt by late in the decade won’t seem like much at all when a loaf of bread costs $20 and a gallon of gas costs $30/gallon.

Of course, your salary will rise too (if you have a job), but not nearly by the same amount. Your savings won’t go as far either. The “Rich” will do well, because hard-assets do better in inflationary environments. The Left will continue to whine, ironically because their own policies will have made national wealth disparity greater than ever.

Remember - The Federal Reserve is the cornerstone of Progressive plans for government.

Much or most (depending on location) of this increase is due to just 4 factors...

1. Chinese (and some other) immigration of many wealthy people (often pay cash for highly-inflated houses), This explains about 3/4 of the purchases in certain exceptionally-inflated local markets (which heavily swing the amalgamated market statistics);

2. Some so-called “vulture funds” (foreign and domestic) are beginning to buy up foreclosed or discarded houses to turn them into rentals (by the thousands and, in the aggregate, tens of thousands ...). These are not the most desirable purchases insofar as reaching stabilization, because decisions by a mere handful of people (those in charge of the funds) can turn these purchases off at any time. (Meanwhile, they help prop up the market some, of course...)

3. FHA loans to unqualified buyers (see other articles about how we the taxpayers are going to “have to bail FHA out” soon)

4. Banks holding back on completing foreclosures (due in part because the regulatory rules provide that the banks may delay showing those losses — by keeping defaulted or REO properties on their books at the former unrealistically-inflated prices — so long as the banks don’t “realize” the losses by selling these houses off to people who may wish to buy them). Depending on which articles you read, there are 6 to 10 million houses where the borrowers have defaulted or stopped paying ...( this is often called the “hidden housing inventory” because they are not yet on offer but will have to be brought to market eventually...)

From the above we can see that the real estate is, for the most part, far from reaching a “stable” market structure. Items 1,3, and 4 in particular are bright, flashing caution signals.

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