Is this why the housing market is heating up?

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The stock market hit an all-time high this week, unemployment dropped to 7.7%, and the Federal Reserve reported that Americans have regained the $16 trillion in wealth lost during the Great Recession.

In contrast, home prices nationally remain, depending on the index, up to 30% below peak levels, while mortgage rates are at all-time lows.

Plus, as I reported last week, home ownership between 2004 and 0212 declined by 3.6% or some 4 million households.

Add to that an historically low level of houses for sale, and what do you get?

In classical economic theory, the relation between supply and demand determines the price of a commodity. As demand for an item increases, prices rise. When manufacturers respond to the price increase by producing a larger supply of that item, this increases competition and drives the price down

Demand is up and increasing
Supply is at historic lows
New housing starts remain well below “normal” levels and can’t be increased quickly

Based on the above, where do you think prices are headed in 2013?

Associated Press; March 7, 2013

WASHINGTON — It took five years, but surging stock prices and steady home-price increases have finally allowed Americans to regain the $16 trillion in wealth they lost to the Great Recession.

The gains are helping support the economy and could lead to further spending and growth.

Household wealth amounted to $66.1 trillion at the end of 2012, the Federal Reserve said Thursday. That was $1.2 trillion more than three months earlier and 98 percent of the pre-recession peak.

Further increases in stock and home prices this year mean that Americans’ net worth has since topped the pre-recession peak of $67.4 trillion, private economists say. Wealth had bottomed at $51.4 trillion in early 2009.

“It’s all but certain that we surpassed that peak in the first quarter,” said Aaron Smith, senior economist at Moody’s Analytics.

Household wealth, or net worth, reflects the value of assets like homes, stocks and bank accounts minus debts like mortgages and credit cards. National home prices have extended their gains this year. And the Standard & Poor’s 500 index, a broad gauge of the stock market, has surged 8 percent since Jan. 1.