By Laura Kusisto

U.S. home prices have climbed back above the record reached more than a decade ago, bringing to a close the worst period for the housing market since the Great Depression and stoking optimism for a more sustainable expansion.

The average home price for September was 0.1% above the July 2006 peak, according to the S&P CoreLogic Case-Shiller U.S. National Home Price index released Tuesday.

Adjusted for inflation, the index remains about 16% below the 2006 high. Home prices jumped 5.5% over the past year.

The new record caps a four-year recovery from the trough of 2012, when prices sat 27% below the peak after a crash that caused more than nine million American families to lose their homes.

While housing has lagged behind somesectors of the economy in recent years, there are signs of gaining strength: Single-family housing starts rose 11% in October, according to the Commerce Department, and the number of starts remains well below the historical average, suggesting there is room for acceleration.

Likewise, the share of first-time buyers rose to 33% in October from 31% a year earlier, inching closer to the historical average of 40%. The lack of first-time buyers had been a drag on the market because, without a deep pool of ready buyers of starter homes, owners of those homes have a harder time trading up.

Robert Shiller, an economist at Yale University who co-developed the index, said the record provides a significant psychological boost for homeowners, some of whom are finally seeing their homes above water after four years of recovery.

"It creates an atmosphere that the sky is the limit," he said.

Some economists are surprised by the magnitude of the home price gains in recent years given the more moderate pace of wage growth.

"It's not clear with the degree of [economic] growth that we've had that we should have expected prices to rise this much," said Doug Duncan, chief economist at mortgage company Fannie Mae. "We have a caution light on."

One reason home prices have risen so quickly is a prolonged period of ultra-low interest rates. Those rates have jumped about half a percentage point since earlier this month, and while they remain near historic lows, a sustained rise could slow price gains particularly in expensive coastal markets.

The housing recovery since 2012 has been uneven, often benefiting wealthier homeowners disproportionately. Just 34 of the largest 100 metropolitan areas have seen starter home prices recover to their previous peak, while 56 areas have seen high-end homes reach or surpass previous highs, according to home-tracker Trulia.

About12% of homeowners who have a mortgage now owe more than their home is worth, down from more than 30% at the bottom of the market, according to Zillow.

"Personally I wouldn't be throwing confetti because my house is worth what I paid for it back eight years ago," said Nela Richardson, chief economist at real-estate brokerage Redfin.

Still, in many parts of the country that were battered by the crash, a return to near-normal conditions has come as welcome relief, and faster than many expected.

The median home value in Lehigh Acres, Fla., on the eastern edge of Fort Myers, bottomed at about $61,000 after peaking at $230,500 in July 2006, according to Zillow. Today, the median home price has risen to about $140,000, a level officials say is closer to what the area can sustain in an era of tight mortgage credit. In fact, Fort Myers now has a shortage of starter homes, said Mayor Randall Henderson.

Meanwhile, the national recovery has allowed longtime homeowners to sell and relocate, making the U.S. labor force more mobile than it has been in years.

Dan Tanner, 58 years old, sold his home in Savannah, Ga., at the height of the bubble in 2007 for just over $300,000, nearly a $100,000 profit in just a few years. He plowed the gains into two condominiums, one in Savannah and another in Atlanta. The value of both homes dropped by 25% within a year.

Mr. Tanner eventually sold the Savannah condo at a $30,000 loss, but held on to the Atlanta property even when the balance of his mortgage exceeded the property's value.

"A friend of mine was like, 'You made a commitment, you should stick to it,' " he said. "I saw other people do it and I just couldn't, I just couldn't do it."

Now Mr. Tanner plans to sell the Atlanta condo for more than he paid, as home prices in that market are about 3% below their July 2007 peak and 60% above the recent low hit in March 2012, according to Case-Shiller.

The recovery also has produced a few big winners who timed the market especially well.

The majority of young people weren't interested in buying early in the recovery or couldn't qualify for a mortgage. Now they are struggling to afford rising prices. But many of those prescient enough to get in early have quickly built thousands of dollars in equity.

Jeremy Mann, a 31-year-old doctoral student, and his wife, Erin, a nurse practitioner, bought a home in 2011 when they were just a few years out of college -- something they never imagined would be possible until the market bottomed out.

"[We realized] we could buy a house now even though we thought that was five or 10 years in the future," said Mr. Mann.

The Manns moved to Chicago from Los Angeles after graduation and were paying $1,300 a month in rent. They wanted to live near friends from their church and quickly realized it wouldbe cheaper to buy.

They purchased a rundown building in an up-and-coming area for just $310,000, with a $1,600 monthly mortgage payment. The building was big enough for them to rent out several units, covering the mortgage payment.

When the couple had the home appraised a few years ago, the value had increased to $425,000. They were able to refinance and use the money for a down payment on a new home, holding on to the original property as an investment.

The moves helped give Mr. Mann the financial freedom to work on starting a school for underprivileged children, he said.

"It's not like we were so savvy in home buying or that we were real-estate mogul people," he said. "We really feel like we've been blessed."

Write to Laura Kusisto at laura.kusisto@wsj.com

(END) Dow Jones Newswires

November 29, 2016 09:53 ET (14:53 GMT)

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