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Why home prices are climbing again, and what you should do about it





Chances are home prices in your neighborhood have been rising lately. Strangely enough, that only made the news when, for last November, Standard & Poor's Case-Shiller index of home prices in 20 top cities fell the grand total of 0.1 percent.

The Federal Reserve tracks a national composite home price index for the country, which looks like this:

Home price index since 1987 (all data available)

Is this good news or bad news to you? That may depend on whether you own your home or not. If not, and you're saving up to buy, that's disheartening, as you see your dream slipping out of reach. If you do own, odds are you're pleased to hear news like this.

Of course, not everyone is sharing equally in this bonanza. Metropolitan centers like New York and San Francisco are experiencing sharper increases, while other locations have more moderate increases or even no increases at all.

Why Are Home Prices Rising?

The glib answer would be something like: "Well, it's about time the market caught up with itself again!" The reality, though, is there is no such thing as normal home prices. When they go up, some complain, saying that's inflation, pricing newcomers out of the market. On the other hand, when home prices drop, all hullabaloo breaks loose and it's the end of the world. You can't please all the people all the time, as the saying goes. Politicians (and the Federal Reserve) have figured out most people want home prices to rise slowly over time, and that's what they generally have done in the past.

We all know about the housing bubble which engulfed us as the new millennium started, and its subsequent pop. The chart above shows those two events clearly. We know why the housing market crashed: the explosion of the Wall Street collateralized-mortgage-securities debacle.

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