THIS IS GOOD NEWS!
Home Prices Are Rising, and So Are Sales
The latest housing data showed upward momentum in both prices and sales. Construction is also up.
By SHAILA DEWAN
Published: June 25, 2013
Mortgage rates may be inching up, but they have not put a damper on the American housing market rebound, according to figures released Tuesday that showed upward momentum in both prices and sales.
The Standard & Poor’s Case-Shiller home price index showed a 12 percent gain in prices in 20 cities from April 2012 to April 2013, the largest gain since early 2006, when home values began to slow in advance of the market collapse.
Stocks on Wall Street surged on a flurry of better-than-expected news, including increases in sales of new homes and consumer confidence. New homes were selling at a rate of 476,000 a year in May, up 2.1 percent from April, the Commerce Department reported.
The housing numbers continued a solidly higher trend of stronger sales, more construction and a dwindling number of homeowners who owe more on their mortgages than their homes are worth.
But a spike in interest rates after last week’s comments by Ben S. Bernanke, the chairman of the Federal Reserve, raised fears among some economists that higher mortgage costs could slow a revival that promised to infuse the economy with spending on big-ticket items like furniture and dishwashers.
Others argued that the housing recovery was driven more by an improving job market, pent-up demand and a severe shortage after so little was built during the recession.
“Inventories are low for both new and existing homes, as well as for rentals,” said Stuart Miller, the chief executive of Lennar Corporation, the nation’s third-largest home builder, which on Tuesday reported a 53 percent rise in revenue in the second quarter of the year. “The monthly payment math continues to push families to find a way to purchase.”
Case-Shiller tracks prices in 20 markets, and the 12.1 percent gain was the average increase. But the increases varied widely, with houses in New York up 3.2 percent over the year, while homes in San Francisco were up 23.9 percent. Some of the markets hardest hit during the recession produced some of the largest one-year gains, with Atlanta, Detroit and Las Vegas each rising around 20 percent. Los Angeles showed a gain of nearly 19 percent over the year, while Boston, Chicago and Denver were closer to 10 percent.
Some of the gains may have been fueled by investors looking to cash in on low prices in hot markets. The Federal Housing Finance Agency, which issued its own price index report on Tuesday, said prices were up much less, 7.4 percent in April over the previous year, and that on average, home values were still 11.7 percent below their peak. Case-Shiller said houses were still worth less than three-quarters what they were at their peak.
At this point in a recovering market, rising prices and even rising mortgage rates may help rather than hurt. In the short term, both may drive fence-sitters to step up their timetable to catch rates and prices before they go up even more. In the big picture, they provide some assurance that a house is once again a prudent investment.
And homes are still relatively affordable. Even if mortgage rates go up to 4 percent by the end of the year, as the Mortgage Bankers Association forecasts, they will still be much lower than historical norms. In May, the average interest rate on a 30-year fixed mortgage stood at 3.5 percent.
Leah Berk, a business school student who is searching for a condo in the popular Boston-area city of Brookline, said she was much more concerned about finding an affordable price than about rising mortgage rates.
“I’m really at the beginning of my search, so I’m not looking at the interest rates super-duper carefully,” she said. “My parents, when they bought their house 30 years ago, the interest rates were 17 percent. So with that in mind, if I can get an interest rate that’s 4 or 4.5 percent, that’s fine.”