Recovery hits home prices

A 'For Sale' sign is posted in front of a house on November 27, 2012 in Los Angeles, California. According to the S&P/Case-Shiller Index, homes prices in November were up 0.6 percent from the previous month and 5.5 percent from the previous year.

New home prices are rising. The lastest numbers from the S&P/Case-Shiller Home Price Index show home prices in November  up by a seasonally adjusted 0.6 percent from the previous month and up a record 5.5 percent from the previous the year. That's the strongest year-over-year growth since 2006.

Juli Niemann is an analyst with Smith Moore and Company. She says we are finally seeing the economic recovery taking hold in the housing market:  "The last time that housing really wrapped up, 2011, we were hitting lows not seen since 2003. So last year by comparison was awful. The economic recovery really wasn't helping housing." But now she says low prices and historic low intereset rates are finally starting to trigger a demand in sales."

"But make no mistake," cautions Niemann, "this is no economic boom here. We got a lot of big unknowns."

One of those unkowns, according to Niemann, is the shadow inventory. "That's the number of homes that are owned by the big banks," she says. "Fannie Mae, Freddie Mac -- they own them, but they haven't listed them yet. Consumer confidence still is not robust. The catch phrase here, potential home buyers are cautiously optimistic."

Meanwhile, investors appear to be cautiously optimistic as well. The S&P 500 has passed the 1500 mark and the Dow Jones Industrial Average has also hit multi-year highs. All of that, Nieman says, indicates that small investors are getting back in to the market.

"We've got Uncle Ben Bernanke to thank for all of it," says Niemann. "For the markets -- stock market -- and for the housing recovery. And that's because he's still flooding the economy with cash and it's not going to let up near term."

"You've got short-term interest rates at zero," Niemann explains. "Everybody's wondering, where are you going to put the money? CD's? No. Bonds? No. The yields are way too low. Finally we're seeing investors change course here. The fear factor kept them in money market balances way too long. But a modest improvement in employment, a modest improvement in the economy is making them very visible to see where the opportunities are -- and that has to be somewhere in the stock market."

About the author

Mark Garrison is a reporter for Marketplace and substitute host for the Marketplace Morning Report, based in New York.

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