Recent news that the Case-Shiller Housing Index posted a five-year high in May is cause for some celebration at the macro-level, but since the index is so regionally variable, investors and average homeowners should not start spending their home equity and paper appreciation.
That’s the caution from Yale Professor Robert Shiller, co-developer of the Case-Shiller housing sales index who noted in a Bloomberg radio broadcast today that although the affordability index (home prices and low mortgage rates) is low, speculation and stringent mortgage standards can still choke off any longer-term housing recovery.
News that the Standard & Poor’s Case-Shiller index showed existing-home prices in 20 U.S. metropolitan areas were 12% higher in April 2013 than a year earlier. Home prices posted their largest monthly gains since the Case-Shiller data began, rising 2.5% in April 2013 from March 2013 in the 20-city index. But that news was tempered by earlier news that long-term mortgage rates could start to increase as the Fed considers plans to curtail its historic monetary easing policy that has pumped billions of dollars a month into the economy since the recession began in mid-2007.
Shiller noted that the number of house flippers is on the increase and one-third of all home buyers are paying cash. So despite the tight inventory of homes, there are important factors in the market which could mean the housing recovery is not broad-based or sustainable.
Shiller cautioned that the current euphoria could evaporate and “home owners may not be so happy in three to five years” if rates rise significantly and the recovery stalls.
He also noted that more people are moving into urban apartments and that home prices in more remote suburban areas are not rising. This means more people are becoming urban dwellers. This fact, combined with the scarcity of more affordable mortgages products foretells a slow recovery.
“We do not have a healthy mortgage market,” Shiller said. That, combined with cash speculative buyers for homes, combined with stagnant wage growth should put the cap on new home buyers. And that could stall any broad-based economic recovery.
