U.S. Home Prices Climb at Fastest Clip in 7 Years
U.S. Home Prices Climb at Fastest Clip in 7 Years
Index Shows 12.4% Annual Increase in July, but Signs Emerge of Moderating Gains
By NICK TIMIRAOS
Updated Sept. 24, 2013 1:59 p.m. ET
U.S. home prices rose by their fastest pace in more than seven years during July, according to an index released Tuesday, though more recent data suggest price gains could soon moderate.
Prices in 20 major U.S. cities increased 12.4% in July compared to the same month last year, according to the Standard & Poor's/Case-Shiller index.
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Home-price inflation accelerated sharply over the past year as more buyers have chased a shrinking supply of homes for sale. Fewer properties are selling out of foreclosure and until May, mortgage rates had hovered near record lows, letting buyers qualify for slightly more debt without increasing their monthly payment much.
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Rising mortgage rates, which are up nearly a percentage point since May, could ultimately test buyers' willingness to pay more. That may have accelerated some purchases from buyers who had initially planned to buy later this year, but it has made other buyers more hesitant.
Real-estate agents and executives have reported slowdowns in sales traffic in August and September. Also, there are signs that investors have begun to step back from the market amid higher prices.
Data releases on Wednesday for new-home sales in August and on Thursday for contracts to buy existing homes should provide more up-to-date gauges of demand.
Tuesday's report hinted at a possible slowdown in the rate at which prices are going up. While all 20 cities tracked by the Case-Shiller index gained in July, the pace at which prices rose slowed in 15 cities.
"The slowing in monthly gains is not a nail in the recovery's coffin," said Bill Banfield, director of capital markets at Quicken Loans. "In fact it shows a normalizing of the market and that this growth can be sustained."
Home prices rose 1.8% in July from June. While that was slower than the month-over-month increases in the previous three months, prices tend to rise fastest in the spring, and they typically peak in June. July's gain was still the largest for that month since the Case-Shiller index began its count in 2000.
The index tracks home prices on a three-month moving average; Tuesday's report measured prices on home sales that were recorded in the May-to-July period, and buyers would have closed on contracts to buy those homes one or two months before then.
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The Las Vegas skyline glows at dusk as a motorist pulls into the driveway of a home in Henderson, Nev.Associated Press
Prices are up most sharply in many of the Western and Southwestern markets that saw some of the biggest declines. Prices have jumped 27.5% in Las Vegas over the past year, while San Francisco gained 24.8% and Los Angeles, 20.8%.
Rising rates could make it harder for sellers to keep asking buyers to pay more, especially in markets that have witnessed some of the sharpest gains. Home builders have been particularly aggressive over the past year raising prices. Now, rising rates have been "almost like a red light on the frantic price inflation," said Ivy Zelman, chief executive of Zelman & Associates, a research and advisory firm.
Home builder KB Home reported Tuesday that new-home orders declined by 9% in the three-month period ending in August versus the year-earlier period, led by a 35% decline in the west coast. Cancellation rates increased to 33% during the quarter, versus 29% in the previous-year period. Meanwhile, Lennar Corp. reported a 14% increase in orders, and a 32% increase in orders by dollar value.
The spike in mortgage rates caught some buyers by surprise, leading them to back out of purchase agreements, while others "are taking a little longer to make the home-buying decision," said Jeffrey Mezger, chief executive of KB Home. But he said such "twists and turns" weren't unusual in a housing recovery.
Write to Nick Timiraos at nick.timiraos@wsj.com
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