After nearly six years of deflating home prices, the housing market is finally firmly on the path to recovery. For the year ended September 30, home prices nationwide rose by 4.9 percent, and the median price for existing homes jumped by almost $14,000, to $185,000, according to Clear Capital, a provider of real estate data and analysis.
Home prices rose or remained flat in about two-thirds of the 313 cities that Clear Capital tracks and continued to fall in the remainder, mostly by single-digit percentages. Fifty cities experienced double-digit increases in home prices, led by Phoenix, with a gain of 28.4 percent. Such spikes reflect a "correction to the correction," says Alex Villacorta, director of research and analytics for Clear Capital. The properties had become undervalued when measured by affordability.
Home prices will keep rising in 2013. Forecasts range from a modest 1 percent hike to 5 percent or more. As the recovery blooms, home buyers should expect to face stiff competition for fewer highly desirable homes. High rental occupancy and rising rents are encouraging renters to move on to homeownership. Also, as home prices rise, owners who were underwater or nearly underwater -- without enough equity in their homes to pay off the mortgage -- will emerge from the sidelines and start selling and buying homes, says Molly Boesel, a senior economist at CoreLogic, a mortgage data firm.
Many of the cities that are doing the best are those that Villacorta describes as "first in, first out," including Phoenix and many cities in Florida and California's Central Valley. The real estate bubble began to burst in those cities earlier than in many others, and the cities have begun to recover earlier, too.
Other cities -- including San Francisco, San Jose and Washington, D.C. -- are relatively expensive again, driven by strong job growth, especially in technology and defense. Utah's largest cities (Ogden, Provo and Salt Lake City), as well as Denver and Little Rock, Ark., never experienced a huge drop-off in home prices, and as a result they posted gains in 2012 that exceeded their losses since the peak. Several cities have seen steady gains: Austin, Texas, Pittsburgh, and the upstate New York cities of Buffalo, Rochester and Syracuse. They neither boomed nor busted; they just kept plugging along.
The large U.S. cities where home prices remained flat or fell in 2012 suffer from either a surplus of distressed properties or uninspired economies -- or both. They include Chicago, Louisville, Ky., Memphis, New Orleans, the greater New York metropolitan area and Philadelphia.