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Housing Prices in a Rational Rebound?
Jesse Richman, 2/26/2013

The most recent edition of the Case Shiller Index suggests that the U.S. housing market continues to rebound from the housing slump.  Indeed, home prices are apparently moving up at a torrid pace in some cities.  Overall, the pattern seems to be of more modest increases, but the trend has been up over the last few months almost everywhere.  This lends support to my claim last September that the end of the great bubble deflation had been reached.  http://www.idealtaxes.com/post3556.shtml.  In some cities prices remain at depressed levels relative to historic norms once those are adjusted for inflation.  In other cities, however, some additional declines may well occur. 

In particular, the following markets tracked by the 20-cities Case-Shiller index are trading near or below their end of 1999 price levels once adjusted for inflation. 

AZ-Phoenix
CO-Denver
FL-Tampa
GA-Atlanta
IL-Chicago
MI-Detroit
MN-Minneapolis
NC-Charlotte
NV-Las Vegas
OH-Cleveland
TX-Dallas

With the exception of cities that appear to be in significant long-term economic decline, these markets are likely to provide reasonably good investment opportunities in the near term.  Prices in these markets ought to appreciate further as (and if) the national and local economies return to normal.  

Markets in other cities remain elevated.  In some cases this may represent the result of long-lasting changes in the economy of the area and the supply-demand conditions for housing that perhaps justifies the high prices.  In other cases, however, short term climbs in house prices may merely be a blip on a continuing trend toward below-inflation returns on housing.  Buyers in these cities should be particularly cautious. 

CA-Los Angeles
CA-San Diego
CA-San Francisco
DC-Washington
FL-Miami
MA-Boston
NY-New York
OR-Portland

WA-Seattle

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