Home Prices Back at Peaks in Some Areas

Recovery Remains Uneven as Cities Spared in Bust Soar, but Many Others Struggle

Home prices have zipped back into record territory in a handful of American cities, a milestone that comes seven years after the housing bust ravaged the market and the broader economy.

Values are up more than 13% from their 2007 high in Oklahoma City and by more than 6% in the Denver metro area. Prices are back to all-time highs in 10 of the nation’s 50 largest metropolitan areas, according to a Wall Street Journal analysis of price data from Zillow, an online real-estate information service. Prices are within 5% of their previous peak in San Jose, Calif.; Nashville, Tenn.; and Dallas.

Prices nationally remain below the highs of the past decade, and many of the cities that have seen the biggest gains largely escaped a boom and bust.

Home prices in some parts of the country that did experience a bust have benefited from low supplies of homes for sale and historically low interest rates that have boosted prices—and sparked concerns that prices could again be overvalued.

The figures aren’t adjusted for inflation, but experts say they underscore the uneven nature of the U.S. housing recovery.

“The main story in a lot of these places is that they didn’t have much of a housing recession. It’s much easier to be back at peak levels when you didn’t have a big boom and bust,” said Stan Humphries, chief economist at Zillow.

But in those areas that did experience a downturn, he added, “I’m surprised that we are back to peak levels so quickly.”

Brian Long of Colorado was surprised, too. At the top of the housing bubble in 2006, Mr. Long paid $667,500 for a five-bedroom home in Lafayette, Colo., which is about 20 miles northwest of Denver. Prices then fell 12% through 2011. This summer, he sold the home for $710,000.

“The opportunity came up, so we ran with it,” said the 49-year-old Mr. Long, who runs a company that collects and sells market research.

The 10 metro areas enjoying a full-scale rebound are based on figures for the entire region. The Wall Street Journal also analyzed Zillow price data individually in more than 4,400 cities and towns in the country’s largest metro areas. Nearly 10% of municipalities have seen prices reach new highs this year when compared with their previous peak, and prices are within 5% of their previous highs in 300 more.

These cities are largely exceptions, and prices in many parts of the U.S. are still well below their peak. In some 1,500 cities, values are still at least 25% lower than their previous highs. Nationally, values fell 23.8% between 2007 and 2011 before rebounding 9.9% after hitting bottom in late 2011; they are now 16.3% below the high of the last decade, according to Zillow.

The Zillow data also reveal the extreme variation—even within a particular metropolitan area—of the housing boom, bust and recovery. Prices are up 40% from their prior highs in Palo Alto, Calif., which is just 50 miles from San Pablo, a working-class suburb north of Oakland. Values there are still 54% below their peak. While 38% of all Bay Area ZIP Codes are back above their prior peaks, prices in another 18% are more than 25% below their previous highs, according to the Zillow data.

To find some of the nation’s steadiest housing markets, head to the Great Plains and Texas, which have enjoyed strong job and population growth tied to the oil, mineral and gas industries.

“We had no bubble here, so there was really no reason for prices to drop,” said Keith Taggart, a real-estate agent in Mustang, Okla., and president of the Oklahoma City Metro Association of Realtors. Nearly 2,000 people relocate to the area every month, creating demand for homes, he said. At the same time, there’s plenty of land to develop, so prices don’t rise in “any outrageous way,” Mr. Taggart said.

In August, Gwen Thompson and her husband sold for $92,000 the three-bedroom home in Mustang that they paid $65,000 for in 1995.

“People keep moving here, and that really helped hold value,” said Ms. Thompson, a 45-year-old executive assistant at a local bank. She and her husband broke ground last month on a $245,000 home that is being built one town over.

Nearly every ZIP Code in Oklahoma City’s metro area is at a record high or within 5% of the previous high, according to the Journal analysis. Values in more than 60% of ZIP Codes in five other metro areas—Tulsa, Okla.; Buffalo, N.Y.; Rochester, N.Y.; Austin and Denver—have reached new highs.

The Zillow data compared prices in October with the previous decade’s peak price, which for most cities was reached between 2005 and 2007. The company uses a proprietary model to estimate values, considering recent sales and appraisals to determine the median value of all homes for a given area.

Some well-off communities in coastal California, Boston and Washington, D.C., which saw modest price declines during the bust, are rebounding quickly and reaching new highs because of supply shortages and better-than-average job growth. Prices in Palo Alto, for example, have jumped nearly 19% in the year ending in October and stood nearly 40% above their 2007 peak, one of the largest gains in the survey.

“What you’re looking at, for the most part, are high-end neighborhoods that never saw the same degree of inflation in the first place,” said Christopher Thornberg, a housing economist with Beacon Economics in Los Angeles.

Some economists worry that home buyers along the coasts could again be looking at homes as investments rather than as places to live.

To the extent that gains aren’t supported by rising rents or incomes, “you start to go, ‘Geez, did people get a little too excited?’ ” said Thomas Lawler, an independent housing economist in Leesburg, Va.

It is unclear how much longer buyers will continue to bid prices higher. Buyers often tell Mia Simon, a real-estate agent with Redfin in Silicon Valley, that they are going to sit out the market. “They say, ‘This is crazy. This can’t continue,'” she said. “The rest are like, ‘Why didn’t I buy in 2010 or 2011?’ ”

A separate concern is that low interest rates have distorted prices. Most homeowners who need a mortgage shop for a home based on their monthly payment. The Federal Reserve’s policies have kept mortgage rates near all-time lows. While those rates have helped make homes extremely affordable, homes could look much less affordable once mortgage rates rise, especially if prices have zoomed higher.

“What you’ve got is something other than a sensible market-deciding price. You’ve got it goosed by the terms of finance, which are extraordinary,” said Robert Albertson, chief strategist at Sandler O’Neill + Partners, an investment-banking firm in New York. “Prices shouldn’t be up this high, this quickly. It’s a big, flapping yellow flag saying we’re back in territory that we should not be in.”

Source: WSJ