Home prices, new home sales show big increases

Home prices are rising at a record pace, and new-home sales soared at the fastest pace in five years, according to data released Tuesday.

While home prices have been skyrocketing for more than a year — spurred by high buyer demand and a shortage of inventory — this month’s rate of increase surprised some analysts. Home prices rose in all 20 cities of the Standard & Poor’s Case-Shiller index from a year ago, up 12.1 percent from April 2012, marking the biggest increase since March 2006. Home prices in Washington rose 7.2 percent in April, compared with a year ago, according to the Case-Shiller report. They are up 2.4 percent from March.

(-)

Video

Robert Shiller, a professor at Yale University and co-creator of the S&P/Case-Shiller home-price index, talks about the U.S. housing market and his \

Robert Shiller, a professor at Yale University and co-creator of the S&P/Case-Shiller home-price index, talks about the U.S. housing market and his "optimistic" short-term outlook.

“It definitely seems like the recovery is picking up pace,” said Ryan Severino, senior economist at Reis, a real estate research firm.

This comes less than a week after the Federal Reserve said it could begin scaling back its massive bond-buying program, sending markets on a wild ride and sparking concerns that the housing sector’s stellar recovery could slow. The housing market has been one of the chief drivers of economic growth as buyers rush in to make the most of historically low mortgage rates.

But mortgage rates have risen over the past month, and many economists expect that to continue as the Fed prepares to taper its bond purchases. Higher rates could encourage some buyers to quickly lock in a deal, while making a purchase too expensive for others. Either way, economists say, it could be potentially destabilizing to the housing market.

The housing market also has been hampered by a low inventory of homes for sale, which is likely to push prices higher until the end of the year irrespective of the Fed’s actions, analysts said.

“There’s just not enough homes on the market,” said Walter Molony, spokesman for the National Association of Realtors. “The Fed really can’t do anything to control that.”

Rising home prices are good for the economy in the short term as they help homeowners build wealth and encourage builders to begin construction, analysts said. But the current pace of growth isn’t desirable in the long term, they said, though prices are down more than 20 percent from their 2006 peak.

“We need the economy to recover, but home prices don’t need to go up,” said Robert Shiller, one of the originators of the index and an economics professor at Yale University.

Home prices should grow at a slower pace by the end of next year and reach a steady rate of 3 to 4 percent by 2015, economists said, provided mortgage rates do not change dramatically. Rates for a 30-year fixed mortgage are hovering near 4 percent, and economists say it is likely to continue to rise.

A key to easing the rise in home prices will be new-home construction, analysts say.

New-home sales for May reached 476,000 on an annualized basis, up 2.1 percent from April and 29 percent from May 2012, according to data from the Commerce Department released Tuesday. The median sales price of homes was nearly $264,000 in May, an increase of more than 10 percent from a year ago.

Builders are slowly gaining faith in the housing recovery, said Robert Denk, senior economist at the National Association of Home Builders. Earlier this month, the association’s survey of builders showed that confidence was at its highest level in seven years.

“Today’s report is generally positive for builders,” Denk said. “But while the numbers are good, they only get us back to half of where we should be.”

Denk said single-family home construction levels and new-home sales need to double to reach a healthy market. The association predicts that new-home sales will reach 500,000 on an annualized basis by the end of the year and 700,000 in 2014.

 
Read what others are saying