Real Estate Prices Continue to Rise Steadily

Filed in Uncategorized by on October 30, 2012 0 Comments

According to the S&P/Case-Shiller index, real estate values in the year ending in August increased by 2% from August 2011, the largest year-to-year gain since July 2010 (about one year after the recession officially ended). Although financial sector over-leveraging, the use of credit default swaps, and overconfidence in mortgage backed securities created the financial meltdown that has become associated with the “great recession,” the housing market was the original trigger.

The subprime lending that occurred was not only often predatory, but it was also based on the assumption that the worst case scenario would be that if people couldn’t afford the ballooning interest rates after the initial “teaser” rate ended, they could sell the house and break even because housing prices were perpetually rising.

The housing recovery is important for more than just making up the ground lost during the recession and helping to provide relief for those who have been stuck with underwater mortgages (a term for when the amount owed for a home is greater than the value of that home). Home ownership not only opens up an extra line of credit for families who might incur unexpected expenses, but it also forces new buyers to put money back into private enterprise in the process of acquiring and decorating their new home.

Overall the pace of the housing recovery has not really been an area of great discussion during this Presidential campaign, so the political effects may be limited. The largest effect this news is likely to have on politics is the effect consumer confidence has on the average person’s political outlook. When people decide to buy a house and take out a long-term mortgage to pay for it, it shows that they are confident in their job security and future career prospects. When people are unsure if they will be able to keep their job, or if they are unsure if they could find another, they are highly unlikely to buy a house.

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