This morning the June 2012 Case-Shiller Home Price Indices were released and showed that home prices have increased across the country in the past year. Both the 10 City and 20 City composite indices were positive, as was Portland. The Portland index’s year-over-year growth of 3.0 percent is the best reading since the summer of 2007, when the momentum of the index was downward, not upward like today. Home prices have now begun to complete the picture of a housing turnaround. New construction has picked up for a little while now and the fact that prices appear to have bottomed as well, further cements the fact that the future in housing is much brighter that it has been in quite some time – although that future is not expected to be anywhere near a return to the go-go days of 2004 – 2006.
Using the Federal Housing Finance Agency data yields a similar story. Like the Case-Shiller, home prices across the state have stabilized over the past year or so with most ares of the state only registering small negatives. Most areas have yet to return to positive growth by these measures, however the direction of the change is trending positive.
Overall, expectations are for stabilization in home prices across the state. Our office’s latest forecast actually still has price declines of about 2 percent built in over the next year for the statewide FHFA index, however this more generally reflects the stabilization in the market. As prices firm, partially due to low inventory on the market today, more and more homes should come available which will put some downward pressure on prices. This process will help keep prices stable in the near as the market continues to recover. Over the longer run, our expectations are for housing to grow just above the rate of inflation. That is, real home prices will only show small gains over the coming decade, which is certainly a deviation from the massive swings in the past decade.
Finally, home prices matter for at least two big reasons: consumer spending and jobs. High household debt burdens hold down consumer spending as consumers are focused on repairing their balance sheets and rightfully so. Stable to rising home prices will keep more and more homeowners from being underwater on their mortgages, which should help hold down net debt levels and support more spending and economic growth. On the jobs front, housing related industries have declined over 30 percent from their pre-recession levels, however these industries have begun adding employment in Oregon over the past year. This means that housing – one of the two major economic drags on the recovery – is no longer a drag and is even providing some support to the recovery. This support is expected to continue to increase in the coming years as new construction picks up further and the volume of sales also increases.