But while sales and starts are nice, for households it is all about prices. Housing wealth is huge, totaling roughly $24.5 trillion. That's about 40 percent of household net worth and roughly 50 percent greater than GDP! That is why when the value of our home rises, we feel a lot better. Eventually, if it becomes worth enough, we start thinking we can retire.
So what is happening to prices? Nationally, they are up. CoreLogic puts the gain at more than 8 percent, S&P/Case Shiller comes in at about 7 percent, the National Association of Realtors says existing-home prices increased by about 6.5 percent, Zillow puts it at 6 percent, and the Federal Housing Finance Agency shows a 5.5 percent gain.
No matter how you measure it, prices rose solidly in 2012.
While the numbers look good, they are somewhat skewed by rebounding prices in certain areas. In Phoenix, the increases were more than 20 percent, while California posted nearly double-digit gains. Prices had fallen as much as 50 percent in those areas, so it is not surprising that we are seeing such huge price gains.
Amazingly, even a 20 percent increase in prices doesn't get values anywhere near where they had been before.
It is good to see that prices are jumping. With nearly 28 percent of the homes "underwater," or having values lower than mortgages, the only way the housing market will ever get back to normal is if the number of homes with "negative equity" declines.
The strength of the housing market comes from "churn." People move up to bigger homes, downsize, change neighborhoods, or follow a job. If you are underwater, you don't have equity to use a down payment for the next home, and you cannot move.
Negative equity is not only bad for the housing market, but it harms the job market as well. If people are stuck in their homes, it's hard to take a job far away. Labor mobility is limited. Jobs in one area can go begging because workers living in another area cannot take them. When it comes to rising housing prices, the more the merrier, at least for a while.
How does Philadelphia fit into this? Well, we are not at the leading edge of price increases. Indeed, though the National Association of Realtors has prices edging upward, CoreLogic and the Federal Housing Finance Agency show a decline in the 1 percent range. Prices are not falling rapidly, but they are also not rising significantly, as they are in so many places.
If you just looked at the regional home price number, you would think that Philadelphia is hurting. But it is not. We didn't suffer huge declines in home prices. Indeed, of the 30 larger metropolitan areas, the 19 percent drop from the peak in our region was the ninth smallest. Consequently, modest price increases are not unexpected. And with fewer than 24 percent of the homes underwater, a comparatively low level, we don't have to dig out of a deep hole.
Also, prices are rising, though not everywhere. For example, economist Kevin Gillen found that in the city of Philadelphia, prices rose strongly in Center City, Kensington/Frankford, and South and West Philadelphia but declined in University City and just about all of the Northeast.
Where you live matters, and not the average for the region.
Housing in the Philadelphia region is turning. Prices are rising in many places and affordability is improving as well. Critically, the region's economy and therefore real estate market are well-positioned to benefit from growing demand for health care and the availability of low-cost Marcellus Shale energy.
Don't be surprised if in 2013 we see home-price increases throughout the metropolitan area.
Joel L. Naroff is president and chief economist of Naroff Economic Advisors, Inc., of Holland, Bucks County. Contact him at jnaroff@phillynews.com.
