US home prices rise 5.2% in October: S&P/Case-Shiller

Tight supply of homes for sale is pushing home prices ever higher again — with annual gains swelling in most major markets. Home values in October were 5.2 percent higher than October of 2014, according to the S&P/Case-Shiller National Home Price Index, which measures all nine U.S. census divisions. This is stronger than the 4.9 percent annual gain in September.

Price gains were even larger in the nation’s top 20 housing markets, at 5.5 percent annually. San Francisco, Denver and Portland, Oregon, had the highest year-over-year gains, with all three showing home values in October 10.9 percent higher than one year ago. Twelve of the top 20 largest cities saw bigger annual gains in October than in September.

Home for sale

Stephen Lam | Reuters

Good economic conditions, including low inflation and increased residential construction, continue to support higher home prices, according to David M. Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices. Very low inventories of homes for sale, however, are the main driver of higher prices right now.

Housing starts are higher than they were a year ago, but new home sales are still well below the historical average and 65 percent below the “bubble” peak of 2005. Home prices for both existing and new homes have been bolstered by very low mortgage rates.

“Monetary policy in the mid-2000s certainly pulled forward a lot of sales. We can only wonder the amount of economic and market activity we’ve pulled forward over the last five years,” noted Peter Boockvar, managing director at The Lindsey Group.

Some worry that rising mortgage rates may cut into affordability further, but Blitzer said the recent move by the Federal Reserve, increasing the federal funds target rate by 25 basis points, may not cause rates to rise that much.

“From May 2004 to July 2007, the fed funds rate moved up from 1.0 percent to 5.25 percent; over the same period, the mortgage rate rose from about 6 percent to 6.75 percent during a sustained tightening effort by the Federal Reserve.

The latest economic projections published by the Fed following the recent rate increase suggest that the Fed funds rate will be around 2.6 percent in September 2017 compared to a current rate of about 0.5 percent.” wrote Blitzer. “These data suggest that potential homebuyers need not fear runaway mortgage interest rates.”

As of October 2015, home prices in the nation’s top 20 cities are back to their winter 2007 levels; they are about 13 percent below their latest peak in July 2006.


[Source:- CNBC]