By one measure, the U.S. housing market turned a significant corner early this year: Prices are on the rise everywhere.
For the first time since the bottom fell out of residential real estate beginning in the summer of 2006, all the 20 major cities tracked by the closely watched S&P/Case Shiller Home Price Index rose on a year-over-year basis in January, data released on Tuesday showed.
That is a significant milestone for a property market recovery that has been characterized by inconsistent momentum and spotty regional performances. On average, U.S. homes lost more than a third of their value in the recession, according to Case Shiller data, but some areas lost more than half their value, while others barely registered double-digit declines.
After marking what turned out to be two false bottoms in early 2009 and 2011, the market turned the corner in early 2012, and a host of data, from increasing new and existing home sales volumes to a pickup in housing starts, suggest the recovery is strengthening.
“Definitely we’re seeing more evidence of a rebirth of the housing market,” index co-creater and Yale economics professor Robert Shiller told Reuters Insider. “The housing market is very different from the stock market. (Prices) have momentum and when they start going up, they generally keep going up for a year or even more.”
But the fact that it has taken nearly seven years for all 20 metropolitan areas to show improvement at once belies the fragmented nature of the comeback. For instance, Phoenix has outperformed whereas Chicago remains a laggard.
While it is a positive sign that the gains are widespread, “The housing recovery does remain a bit uneven,” said Stan Humphries, chief economist at Zillow.
“These appreciation rates we’re seeing are certainly not sustainable and I think are not good for the market in the long-term. We’re going to see a period of volatility in home price appreciation until we clear out the negative equity and until mortgage rates get back to more normal rates.”
Following is a look at some of the stand outs and laggards. All figures were calculated using the seasonally adjusted indexes from S&P/Case-Shiller.
Miami and Tampa, the two Florida cities covered by the index, both saw their home prices lose about half their value during the course of their fall from spring 2006 to late 2011. As of January, both cities were more than 40 percent off their highs.
Florida was slammed by a high level of foreclosures following the housing meltdown, made all the worse by its lengthy foreclosure timeline. In February, the state had the highest foreclosure rate for the sixth month in a row, according to RealtyTrac, with one in every 282 homes seeing a foreclosure filing last month.
More than 12 percent of all Florida loans were sitting in the foreclosure process in the fourth quarter of last year, the highest rate of any state, according to the Mortgage Bankers Association, suggesting recovery will be a bumpy road for Florida.
Homes in Phoenix saw their values more than halved during the downturn and the sharp rebound since the summer of 2011 has made the city the housing market’s the come-back kid. Prices in Phoenix have surged nearly 30 percent from their lows, the biggest increase for any of the cities. That still leaves them about 44 percent away from their highs. Phoenix’s declines during the housing crisis are topped by those of Las Vegas, where prices dropped over 60 percent. After hitting bottom later than Phoenix did, Las Vegas has lagged its counterpart’s recovery, rising a little over 15 percent from its low point. That still puts it more than 55 percent away from its 2006 highs.
What the cities have in common is substantial investor interest as buyers have piled in to buy cheap properties that can be fixed up and rented out. Investors purchased 22 percent of home resales in February, according to the National Association of Realtors.
“This has become a speculative market, there’s been a change in our market psychology over the last 50 years,” Shiller said. “People used to just take it for granted: ‘When the time comes, I’ll buy a house.’ Now they’re thinking it’s an iffy thing: ‘Maybe I have to jump in early or get out early.’ So especially in cities like Phoenix and Las Vegas, it’s driving that kind of sentiment.”
Having missed out on some of the excessive frothiness other cities saw during the housing bubble, Dallas and Denver experienced the smallest drop from their peak price levels. Prices fell less than 10 percent in Dallas and just over 11 percent in Denver.
They are also the closest to full recovery. In January both were about 2 percent away from their highs.
A big supporting factor for a healthy property market is a steady job market and both the Dallas and Denver areas fared better during the recession than the country more broadly.
While total U.S. employment fell by 6.3 percent in the recession, Labor Department data shows employment fell only 5.9 percent in Denver and by just 5.1 percent in Dallas. Moreover, while the U.S. economy is still employing 2.2 percent fewer people than it did before the recession hit, both cities now have record high levels of employment and unemployment rates significantly below the 7.7 percent national average.
These two cities are being looked at as potentially the “next Phoenix” because they hit bottom later than many other cities and have a large number of underwater borrowers that could make them attractive for investors, said Humphries.
Bottoming in the early part of 2012, Chicago has gained less than 5 percent since then, while Atlanta has bounced back more strongly with a roughly 16 percent gain.
A little over 28 percent of homeowners in Illinois were underwater in the fourth quarter of last year, meaning they owe more on their loans than their homes are worth, according to CoreLogic. The underwater rate in Georgia was 33.8 percent, putting both above the national average of 21.5 percent.