Home Prices ‘Firm,’ ‘Unstoppable’

Home prices continued their recent tear, with the S&P CoreLogic Case-Shiller Home Price Indices hitting record annual highs for the sixth consecutive month.

The report noted a 6.1% annual gain in August, up from 5.9% in the previous month. The 10-City Composite annual increase came in at 5.3%, up from 5.2% the previous month. The 20-City Composite posted a 5.9% year-over-year gain, up from 5.8% the previous month.

On a month over month basis, home prices rose by 0.5% in August. The 10-City and 20-City Composites reported increases of 0.5% and 0.4%, respectively. After seasonal adjustment, the National Index recorded a 0.5% month-over-month increase in August. The 10-City Composite and 20-City Composite both posted 0.5% month-over-month increases. Nineteen of 20 cities reported increases in August both before and after seasonal adjustment.

Seattle, Las Vegas and San Diego reported the highest year-over-year gains among the 20 cities measured. Seattle led with a 13.2% year-over-year price increase, followed by Las Vegas at 8.6% and San Diego at 7.8%. Nine cities reported greater price increases in the year ending August 207 from a year ago.

“Home price increases appear to be unstoppable,” said David Blitzer, Managing Director and Chairman of the Index Committee with S&P Dow Jones Indices. “The ongoing rise in home prices poses questions of why prices are climbing and whether they will continue to outpace most of the economy. Currently, low mortgage rates combined with an improving economy are supporting home prices. Low interest rates raise the value of both real and financial long-lived assets.”

Bitzer said price gains are “not simply a rebound” from the financial crisis. “Nationally and in nine of the 20 cities in the report, home prices have reached new all-time highs,” he said. “However, home prices will not rise forever. Measures of affordability are beginning to slide, indicating that the pool of buyers is shrinking. The Federal Reserve is pushing short-term interest rates upward and mortgage rates are likely to follow over time, removing a key factor supporting rising home prices.”

Mark Vitner, senior economist with Wells Fargo Securities, Charlotte, N.C., said gains continue to be broad-based, led by huge increases in the West.

“The continued acceleration of home prices has occurred despite fairly tepid wage and salary growth,” Vitner said. “Wages have risen just 3.6 percent over the year, further straining affordability. The top five year-to-year price gains are all in western markets, many of which are land-constrained. Las Vegas recently popped up to second place but prices remain well below their prior peak.”

“Regionally, the index shows that the Great Recession is well behind the 20 cities tracked by the Case-Shiller Index as these markets continue to experience robust price growth,” said Cheryl Young, senior economist with Trulia, San Francisco. “Seattle, however, continues to frustrate homebuyers with the 19th consecutive month of year-over-year double digit price growth. However, there are early signs that prices may have peaked with annual price growth in Seattle at its lowest since April. Nine of the 20 other markets saw prices increase with San Diego behind Seattle.”

The report said as of August, average home prices for metros within the 10-City and 20-City Composites are back to their winter 2007 levels.