Rising home prices, job growth go hand-in-hand

Julie Schmit, USA TODAY7:55 p.m. EDT April 30, 2013

Story Highlights
Home prices up 9.3% in February from February 2012
Tight housing supply, investor demand and job growth are all factors
Phoenix, San Francisco and Las Vegas see largest gains in home prices

A tight housing supply and investor buyers pushed up February home prices at their fastest monthly rate in eight years, but job growth is a factor, too.

In February, the three cities with the strongest price growth year-over-year all posted faster job growth than the national average, government data show.

"Prices are growing faster in markets with stronger job growth," says Jed Kolko, chief economist for real estate website Trulia.

Home prices jumped 9.3% in February from a year ago and rose 1.2% from January on a seasonally adjusted basis, the Standard & Poor's Case-Shiller index of 20 leading cities shows.

The biggest gainer year-over-year remains Phoenix, up 23%. Next was San Francisco, up almost 19%, and Las Vegas, almost 18%.

Bringing up the rear? New York, with a 1.9% annual gain.

Investors are a big part of the Phoenix run-up. They accounted for almost 28% of March sales, says real estate expert Mike Orr at Arizona State University.

Also, Phoenix has a 2.9-month supply of homes for sale, meaning they'd all sell in that time frame if sales continued at the same rate and no new supply was added. Realtors consider a 6-month supply to be balanced.

MORE: Home prices up 9.3% in 12 months

San Francisco also has too many buyers chasing too few homes. In February, its single-family home supply stood at 3.1 months, the California Association of Realtors says.

But Phoenix, San Francisco and Las Vegas also saw job growth in February that beat the national average of 1.5% year over year, according to Kolko's analysis of Bureau of Labor Statistics data.

Phoenix posted a 2.4% gain; San Francisco, 3.6%; and Las Vegas, 2%, Kolko says.

New York, meanwhile, saw 1.3% job growth in February year-over-year.

Detroit prices were also up sharply, 15.2% year-over-year. Yet, Detroit's job growth in February was largely flat compared with a year ago.

The disconnect points to a lot of investor buyers for Detroit homes, Kolko says. Also, prices are so low in parts of Detroit that "renting makes no sense," says Stan Humphries, Zillow chief economist.

Denver has also seen faster-than-average job growth, posting a 3.1% year-over-year gain in February. Its home prices were up almost 10% year-over-year, Case-Shiller says.

Case-Shiller shows Denver's February prices just shy of their 2006 peak.

Zillow's home value index, meanwhile, shows Denver hitting a new peak last month at $234,200.

The Dallas/Fort Worth region and Charlotte are also close to hitting their pre-housing bust peaks, Zillow's data show.

More strong price gains are likely for much of the year, says Paul Diggle, economist with Capital Economics.

That's because the national supply of homes for sale, at 4.7 months in March, is expected to remain tight while the job situation slowly improves.

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