TOPICS > Economy

Housing Market Shows Fastest Rate of Recovery Since Before the Crash

March 26, 2013 at 12:00 AM EDT
New reports show a spike in U.S. home prices, rising at the fastest pace since 2006. To learn what's driving this recovery, Hari Sreenivasan talks with Nicholas Retsinas of the Harvard Business School.

JUDY WOODRUFF: Now a housing recovery that seems to be picking up strength, and even surprising expectations in some cities.

Hari Sreenivasan has our report.

HARI SREENIVASAN: The latest numbers showed the biggest gains in home prices since the onset of the financial crisis. The S&P/Case-Shiller Index found prices rose in the largest 20 markets by a little more than 8 percent in January, compared to a year ago.

Separately, a government report out today found new home sales were down by five percent last month, but still up 12 percent compared to 2012. While some markets are reporting prices are climbing more quickly than expected, the average price of a new home is nearly $247,000 dollars.

For a closer look at what’s driving the pace of this recovery, we turn to Nicolas Retsinas. He teaches about real estate at the Harvard Business School.

So, first of all, this seems to be the fastest rate of recovery since before the crash. What’s your take on these numbers?

NICOLAS RETSINAS, Harvard Business School: Well, there are broad signs of recovery.

All the numbers, as you point out, are positive. So, the recovery is moving. It’s still a little uneven overall, but, clearly, all the signals are positive. That doesn’t mean we can’t overreach. But, right now, it seems we’re moving in a very positive direction.

HARI SREENIVASAN: So, why is it so uneven? It seems that, in certain parts of the country, sales fell in the Northeast, in the South, and they seem to be picking up again in the Midwest and West.

NICOLAS RETSINAS: Well, let’s look, for example, where the price increases were the sharpest today, in Las Vegas, in Phoenix.

In those cases, much of that is motivated by investors. Those are places where prices fell 50, 60, 70 percent in some neighborhoods. Investors feel that was overcorrecting, so, therefore, they’re trying to get in. So, this may be a temporary spike in those cities. Hard to imagine you will see the same pace of increase in the days ahead.

HARI SREENIVASAN: So, is there a danger of us walking back into bubble territory, as some of these folks that have been waiting on the sidelines decide to jump in and almost create the panic that they’re scared of?

NICOLAS RETSINAS: Well, there’s always a danger. But, again, credit is still pretty tight. We still have some issues that we haven’t quite resolved. While foreclosures have slowed, that doesn’t mean there aren’t still more foreclosures ahead of us.

Interest rates at some point will start to edge up. So there are some governors, some dampeners of price increases. So, yes, bubble increases are possible, but probably unlikely, given the recent history.

HARI SREENIVASAN: OK. Let’s talk a little bit about foreclosures. How much of an impact are they having on inventory, or have they made their way through the system?


They have had an impact on inventory for the last couple years. Foreclosures have slowed dramatically over the last year. Banks are worried about getting sued. They’re being much more careful. They’re much more aggressive with loan modifications.

But lest we forget, there are three million households who are either seriously delinquent or started a foreclosure process. At some point, the pig is going to get out of that python. And when it does, it will add to inventory. And when that happens, we will see a price — the price increases will start to moderate substantially.

HARI SREENIVASAN: And what does this increase in prices mean to those people whose homes have been underwater for so long?

NICOLAS RETSINAS: Well, most people’s homes that are underwater are still very underwater.

So, while there’s been a modest uptick in the properties that have gone above water overall, at some point, if prices continue to go up, those people will start putting their homes on the market. They’re reluctant to do so today because to do so means they would have to pay the bank the difference between value and what they owe. But if the value were to go up, you would start to see the inventory go up. That’s why I think that will dampen any substantial price increases going forward.

HARI SREENIVASAN: Now, we know these numbers have a tendency to be corrected every month. So when we look at a three- or four-month moving average, we start to see this trend in the right direction. What happened three or four months ago? What’s different now?

NICOLAS RETSINAS: Well, part of it I think is something we don’t measure very well. And that’s psychology.

You know how sometimes that dogs hear whistles that people don’t hear? Somehow, three, four, five, six months ago, people started to hear a whistle that said, it’s OK to buy a home now. Prices aren’t going to keep falling. And I think that psychology has influenced consumer behavior and it is responsible for some of the uptick in existing home sales and even in new home sales.

HARI SREENIVASAN: And what about the job market? Does that factor into it?


People are much more confident when they’re working. They’re much more confident about buying a home if they’re not being afraid of being let go. And for those children who have been in our basements, maybe now they’re now getting a job. And enough is enough, mom and dad. Time for me to go out in the marketplace.

HARI SREENIVASAN: And so is there enough evidence to see this trend line continuing?

NICOLAS RETSINAS: All the signs are positive.

Again, there are some clouds on the horizon, the interest rates I mentioned, the foreclosures overall. But, generally speaking, we seem to be in the midst of recovery. I just don’t think it’s an overly robust recovery, but I think there are clear signs of recovery.

HARI SREENIVASAN: All right, Nicolas Retsinas from the Harvard Business School, thanks so much.