Home Prices in 20 U.S. Cities Rose 3% in Year to September

Photographer: Daniel Acker/Bloomberg

A "Sold" sign stands outside a new home under construction in a housing development in Peoria, Illinois. Close

A "Sold" sign stands outside a new home under construction in a housing development in Peoria, Illinois.

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Photographer: Daniel Acker/Bloomberg

A "Sold" sign stands outside a new home under construction in a housing development in Peoria, Illinois.

Home prices rose in the year ended in September by the most since July 2010, showing the recovery in the U.S. real estate market is a source of strength for the economy.

The S&P/Case-Shiller index of property values in 20 cities climbed 3 percent from September 2011, after advancing 2 percent in the year to August, the group said today in New York. The median forecast of 29 economists in a Bloomberg survey projected a 3 percent gain. Home prices from July through September climbed the most since the second quarter of 2010.

An improving labor market and record-low mortgage rates are shoring up demand for properties, helping explain an increase in optimism among builders. At the same time, Federal Reserve policy makers are pressing forward with monetary accommodation that underpins the residential real-estate recovery and the economic expansion.

“I think it’s a stabilization on the sales side that’s probably helping with the prices here,” said Sean Incremona, senior economist at 4Cast Inc. in New York. “We’ve had several years now for the housing recovery to sort of catch its feet, and it looks like we are starting to crawl out of the giant hole that we dug into from the financial crisis.”

Photographer: Patrick T. Fallon/Bloomberg

Prices covering all of the U.S. increased 3.6 percent in the third quarter from the same period in 2011 compared with a 1.6 percent gain in the year ended June. Close

Prices covering all of the U.S. increased 3.6 percent in the third quarter from the... Read More

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Photographer: Patrick T. Fallon/Bloomberg

Prices covering all of the U.S. increased 3.6 percent in the third quarter from the same period in 2011 compared with a 1.6 percent gain in the year ended June.

Estimates in the Bloomberg survey ranged from gains of 2.2 percent to 3.6 percent. The Case-Shiller index is based on a three-month average, which means the September data were influenced by transactions in July and August.

Business Spending

Another report showed demand for business equipment picked up in October, signaling companies are starting to overcome concern the looming fiscal cliff will derail the U.S. economy. Bookings for non-defense capital goods excluding aircraft, a proxy for future corporate investment, rose 1.7 percent last month, the most since May, the Commerce Department reported today in Washington. Orders for all durable goods were little changed.

Stock-index futures were little changed as euro-area finance ministers eased terms on loans to Greece and investors awaited a report on consumer confidence. The contract on the Standard & Poor’s 500 Index fell 0.1 percent to 1,402.5 at 9:28 a.m. in New York.

Today’s report also included quarterly national figures. Prices covering all of the U.S. increased 3.6 percent in the third quarter from the same period in 2011 compared with a 1.6 percent gain in the year ended June. They rose 2.2 percent from the previous three months before seasonal adjustment. The gauge climbed 1.1 percent after taking those changes into account.

Monthly Change

Home prices adjusted for seasonal variations increased 0.4 percent in September from the prior month, with 18 of 20 cities showing gains. Atlanta and San Diego showed advances of 1.7 percent. Property values dropped 0.7 percent in Chicago and were unchanged in Tampa, Florida. Unadjusted prices climbed 0.3 percent in September from the prior month.

The year-over-year gauge provides better indications of trends in prices, according to the S&P/Case-Shiller group. The panel includes Karl Case and Robert Shiller, the economists who created the index.

Eighteen of the 20 cities in the index showed a year-over- year gain, led by a 20.4 percent surge in Phoenix. New York and Chicago posted the two decreases in values from a year earlier. Year-over-year records began in 2001.

“With six months of consistently rising home prices, it is safe to say that we are now in the midst of a recovery in the housing market,” David Blitzer, chairman of the index committee, said in a statement.

Mortgage Rates

Record-low borrowing costs have fueled demand for those able to get financing. The average rate on a 30-year, fixed mortgage declined to 3.31 percent last week, the lowest in data going back to 1972, according to McLean, Virginia-based Freddie Mac.

The Fed is moving forward with record monetary easing that includes plans to buy $40 billion a month of mortgage-backed securities, intending to spur growth and reduce a 7.9 percent unemployment rate.

Fed Chairman Ben S. Bernanke said the Fed will take action to speed growth and a rebound in a housing market facing obstacles such as too-tight lending rules.

“We will continue to use the policy tools that we have to help support economic recovery,” Bernanke said in a Nov. 15 speech in Atlanta.

Credit Standards

Bernanke said while tighter credit standards after a collapse in the subprime mortgage market were appropriate, “it seems likely at this point that the pendulum has swung too far the other way, and that overly tight lending standards may now be preventing creditworthy borrowers from buying homes, thereby slowing the revival in housing and impeding the economic recovery.”

Americans bought previously owned homes at the second- fastest pace in more than two years, figures from the National Association of Realtors showed Nov. 19 in Washington.

Horsham, Pennsylvania-based Toll Brothers Inc. (TOL), a luxury- home builder, is among businesses seeing higher demand amid improved pricing.

“We’re in a strong phase of the recovery” owing to “five years of pent-up demand,” affordability and rising prices, Chief Financial Officer Martin Connor said at a Nov. 15 conference. “I think we’ve seen U.S. consumer confidence remain relatively stable and improving, despite a number of speed bumps along the course of this year.”

To contact the reporter on this story: Michelle Jamrisko in Washington at mjamrisko@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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