US home prices jump 12.4 percent in July from a year ago, most in 7½ years

Matt York, File/Associated Press - FILE - In this Tuesday, July 30, 2013, file photo, a realty sign hangs in front of a home for sale in Gilbert, Ariz. Standard & Poor’s/Case-Shiller reports on home prices in July on Tuesday, Sept. 24, 2013.

By Associated Press, Published: September 24

WASHINGTON — U.S. home prices rose 12.4 percent in July compared with a year ago, the most since February 2006. An increase in sales on a limited supply of available homes drove the gains.

The Standard &Poor’s/Case-Shiller 20-city home price index reported Tuesday improved from June, when it rose 12.1 percent from a year ago. And all 20 cities posted gains in July from the previous month and compared with a year ago.

Still, the month-over-month price gains shrank in 15 cities in July compared with the previous month, indicating prices may be peaking. And the month-over-month gains in the 20-city price index have slowed for three straight months.

Stan Humphries, chief economist for real estate data provider Zillow, said home price should continue to rise but at a slower pace. Mortgage rates have increased more than a full percentage point since May. And more homes are being built. That should ease supply constraints that have inflated prices in some markets.

“This ongoing moderation is good for the market overall,” Humphries said.

Home prices soared 27.5 percent in Las Vegas from a year earlier, the largest gain. San Francisco’s 24.8 percent jump was the second largest and the biggest yearly return for that city since March 2001.

The index covers roughly half of U.S. homes. It measures prices compared with those in January 2000 and creates a three-month moving average. The July figures are the latest available. They are not adjusted for seasonal variations, so the monthly gains reflect more buying activity over the summer.

Since bottoming out in March 2012, home prices have rebounded about 21 percent. They remain about 22 percent below the peak reached in July 2006.

The housing market has been recovering over the past year, helped by steady job growth, low mortgage rates and relatively low prices.

Sales of previously occupied homes rose in August to a seasonally adjusted 5.5 million annual pace, according to the National Association of Realtors. That’s a healthy level and the highest in more than six years.

But the realtors’ group cautioned that the August pace could represent a temporary peak. The gain reflected closings and largely occurred because many buyers rushed to lock in mortgage rates in June and July before they increased further. The Realtors said buyer traffic dropped off noticeably in August, likely reflecting the higher rates.

The average rate on a 30-year fixed mortgage was 4.5 percent last week. That’s near a two-year high. It’s still low by historical standards.

Rates rose in May after Chairman Ben Bernanke suggested the Federal Reserve could slow its bond purchase program before the end of the year.

But the Fed surprised markets last week by deciding against reducing the $85-billion-a-month in bond buys, which have kept longer-term interest rates low. The Fed said a key reason for its decision was the sharp increase in mortgage rates and other interest rates.

The Fed’s decision could ease rates temporarily, although many economists expect the Fed will ultimately slow the purchases, perhaps as early as December. Rates would likely rise after that.

Case-Shiller Home Prices Take Off

The Mortgage Corner

 Case-Shiller Home Prices Take Off

The S&P Case-Shiller home price index shows home prices are in full recovery mode.  Over the last 12 months, prices rose 12.3 percent and 12.4 percent as measured by the 10- and 20-City Composites, which are a 3-month average of same-home increases. And because the Fed still in full credit easing mode with its September decision to maintain QE3 securities’ purchases at $85 billion per month, interest rates are beginning to decline

Graph-Calculated Risk

Data through July 2013, released today by S&P Dow Jones Indices for its S&P/Case-Shiller Home Price Indices showed increases of 1.9 percent and 1.8 percent from June for the 10- and 20-City Composites. For at least four months in a row, all 20 cities showed monthly gains. Phoenix posted 22 consecutive months of positive returns. Although home prices in all the cities increased, 15 cities and both Composites those increases slowed in July versus June.

“Home prices gains are holding their 12 percent annual rate of gain established by the two Composite indices in April,” says Chairman David M. Blitzer, of the S&P Dow Jones Indices. “The Southwest continues to lead the housing recovery. Las Vegas home prices are up 27.5 percent year-over-year; in California, San Francisco, Los Angeles and San Diego are up 24.8, 20.8 and 20.4 percent, respectively. However, all remain far below their peak levels.”

The result of lower mortgage rates is mortgage applications are also increasing, after falling sharply in May when the Fed first hinted it would begin to tighten credit in the fall. Mortgage applications increased 5.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 20, 2013.

The Refinance Index increased 5 percent from the previous week. The seasonally adjusted Purchase Index increased 7 percent from one week earlier.  The Purchase Index was at its highest level since July 2013.

Graph-Calculated Risk

The HARP share of refinance applications increased to 41 percent from 40 percent the week before, and is the highest since MBA started tracking this measure in early 2012.  So there is the feeling that many home owners with negative home equity are only now taking advantage of refinancing their underwater mortgages at current interest rates.  The HARP program allows mortgage holders to refinance when debt can be as much as 150 percent of their home’s value.
            So the Federal Housing Finance Authority has stepped up its campaign to encourage more homebuyers to apply for HARP refinancing.  Acting FHFA Director Edward J. DeMarco said that 2.8 million homeowners have refinanced through HARP but with mortgage rates still historically low and HARP eligibility requirements expanded, other qualified homeowners could reduce their monthly mortgage payments or build their equity faster with a shorter term mortgage through the program.

DeMarco told Bloomberg News in an interview this weekend that FHFA used focus groups to find out why borrowers with high rates hadn't yet tried to refinance through HARP. They found many didn't realize they were eligible. They thought they had to be delinquent on their mortgages before the government would help them. DeMarco said he hoped the educational outreach would bring in an additional 2 million HARP borrowers.

This is while total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose to a seasonally adjusted annual rate of 5.48 million in August from 5.39 million in July, and are 13.2 percent higher than the 4.84 million-unit level in August 2012, reported the National Association of Realtors.

           

Harlan Green © 2013

Case-Shiller Prices, Consumer Confidence Up

Housing prices continue to climb, but not as fast in the hardest hit areas.  This is probably because mortgage rates have risen some 1 percent.  But they are no longer rising, as the bond market seems to have already digested the possibility of QE3 ending.

Home price appreciation is very strong but has slowed from early in the year. Case-Shiller's 20-city adjusted index is up 0.9 percent in the June report vs an average monthly gain of 1.4 percent from January to May. But the year-on-year adjusted gain, at a very sizable 12.0 percent, is just off its best level of the recovery which is May at plus 12.2 percent.

Graph:Econoday 

Monthly declines have been popping up in the data for the first time this year but are still isolated and mostly marginal. The West had the highest gains, around the 20 percent area led by Las Vegas at 24.8 percent and San Francisco at 24.4 percent. Note that West coast cities posted some of the sharpest declines during the 2008 meltdown. Cities showing the least gains this year are New York, at a year-on-year plus 3.2 percent, and Cleveland at 3.4 percent.

“Overall, the report shows that housing prices are rising but the pace may be slowing. Thirteen out of twenty cities saw their returns weaken from May to June. As we are in the middle of a seasonal buying period, we should expect to see the most gains. With interest rates rising to almost 4.6 percent, home buyers may be discouraged and sharp increases may be dampened," said David M. Blitzer, Index Committee Chair at S&P Dow Jones Indices.

            Meanwhile, the Conference Board’s consumer confidence index improved, but mainly in future wage growth, believe it or not.  The report's composite headline index showed a slight increase, to 81.5 this month from July's revised 81.0.

            But consumers’ expectation took a big jump in income, believe it or not.  The expectations component rose to 88.7 for a 2.7 point gain. And it was mostly their outlook on income which, after sliding at the beginning of the year in reaction to the hike in payroll taxes, is now at a 2-1/2 year high. The consumer's outlook on business conditions and the jobs market are also up.

Graph:Econoday

This is huge, needless to say, as consumers have been spending less because of the higher payroll tax rate until now.  In fact, if interest rates do hold at, say, 4.50 percent with zero origination points in California, at least, then housing prices should continue to climb this year with confidence rising.

Harlan Green © 2013