Today’s release of S&P/Case-Shiller Home Price Index data revealed that the rate of home price appreciation accelerated even faster than expected in October, climbing to 13.61% year over year.
The rise in home prices in 2013 — following the bursting of the housing bubble during the financial crisis — had an important effect on American households, as it rescued many borrowers who were underwater on their homes.
“The rapid pace of home price appreciation has continued to help a considerable number of homeowners escape negative equity during 2013,” says Gennadiy Goldberg, a U.S. strategist at TD Securities. “The latest CoreLogic data (through Q3) suggest that 4.1 million homeowners have escaped negative equity thus far in 2013 — with 6.4 million remaining in negative equity, compared with 10.5 million at the end of 2012. With home prices continuing to increase at a rapid pace in late-2013, we expect Q4 data to show even more homeowners escaping the negative equity trap, helping to place housing markets on a more balanced footing ahead of 2014.”
Conor Sen, a portfolio manager at New River Investments, calls the repair in household balance sheets the most important chart of the year.
“The reason the past few years hasn’t felt like much of a recovery to the average American is that instead of employment and capex growth we’re been repairing the hole in household balance sheets, particularly home equity,” says Sen. “The percentage of equity that households had in their homes fell by two-fifths, from 60% to 36%, between 2006 and the beginning of 2009. But over the past two years that has recovered swiftly, rising from 44.3% to 50.8% over the past year alone. There’s still a little more work to be done, but with household debt levels finally increasing in Q3 of 2013, we can finally look ahead to a real recovery for workers and the economy in 2014.”
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