Home prices jumped 9.3% in February 2013, according to the S&P/Case Shiller Home Price Indices, recording the largest year-over-year gain since 2006. All 20 cities represented in the indices reported increases for the second consecutive month, an occurrence that has not been matched since 2005. While it is quite possible that the S&P/Case Shiller Indices could have overstated both the declines and the rebound—because pricing declines of previous years could have been amplified by a higher share of distressed sales (and increases aided by fewer foreclosure sales)—the non-foreclosure impact has been measured by other indices, such as Zillow, to still be positively in the mid-single digits.
All of this home growth has taken place amidst a significant drop in U.S. home ownership rate to 65% in the first quarter. The U.S. Census Bureau reported that this is the lowest level of ownership since 1995. Relative to 2004, there are 7.2 million more renters but just 400,000 new homeowners. Despite these ownership trends, we see the real estate gains likely to continue as previously owned and new home sales have registered impressive double-digit gains in recent months and in many markets it is now cheaper to buy than rent. While the supply of existing homes for sale dropped nearly 17% in March 2013 on a year-over-year basis, there are basically more buyers pursuing fewer homes.
- The S&P/Case Shiller Home Price Indices rose 9.3% year-over-year in February 2013, which was the largest increase since 2006.
- All 20 cities in the indices posted year-over-year gains for the second consecutive month.
- We see the real estate gains likely to continue, as it is now cheaper to buy than rent.
- The U.S. home ownership rate dropped to 65% in the first quarter according to the U.S. Census Bureau.
- Housing growth can filter into other associated sectors and broaden the opportunity we have to select stocks with accelerating fundamentals.
Housing growth can filter into other associated sectors and broaden the opportunity we have to select stocks with accelerating fundamentals. “The housing recovery is an important fundamental driver of many of the companies we have researched and own,” says David Hollond, Chief Investment Officer, U.S. Growth Equity—Mid & Small Cap. Read more on housing in Hollond’s Second Quarter CIO Insight: Widespread Impact of the Housing Recovery.
The opinions expressed are those of our investment professionals, and are no guarantee of the future performance of any American Century Investments portfolio. This information is not intended to serve as investment advice; it is for educational purposes only.