Home values posted their first year-over-year increase since 2007 in the second quarter as the U.S. property market began to lift off a bottom, Zillow Inc. said.
The Zillow Home Value Index rose to $149,300, a 0.2 percent increase from the second quarter of 2011, according to the property-data company. Residential values have gained for four months in a row, the Seattle-based firm said today. Of the 167 markets tracked by Zillow, 53 posted annual increases.
Home prices have begun to rise amid an increase in demand, interest rates at record lows and a tight supply of properties for sale. The residential market is showing strength even as job growth weakens and concerns that the European debt crisis will hurt the U.S. economy, said Stan Humphries, Zillow’s chief economist. The country’s unemployment rate has exceeded 8 percent for 41 straight months.
The three months ended June 30 was “a really solid second quarter in the midst of some economic headwinds, which indicates the housing market has some organic fundamental strength on its own,” Humphries said in a telephone interview. “The housing market has finally turned a corner.”
The Federal Housing Finance Agency said today that house prices rose 0.8 percent on a seasonally adjusted basis from April to May. The median estimate of 17 economists in a Bloomberg survey was for a 0.4 percent increase. Prices climbed 3.7 percent from May 2011, according to the gauge, which is based on purchases of properties with mortgages backed by Fannie Mae or Freddie Mac.
The U.S. residential market has a “long list of positives,” including rising prices, supportive government policies and a decline in the so-called shadow inventory of homes, Joshua Pollard and Anto Savarirajan, analysts at Goldman Sachs Group Inc., wrote yesterday in a note to clients. They raised their rating on the homebuilding industry to attractive from neutral.
While home values are rising, it’s “dangerously shortsighted” to call a bottom, said Michael Feder, chief executive officer of New York-based Radar Logic Inc. A continued increase in prices may temper investor demand and draw more sellers to the market, causing values to drop, the company said.
Home prices rose 0.7 percent as of May 23 from a year earlier, according to the company’s RPX Monthly Housing Market Report, also released today.
“Not only are the immediate signs inconclusive, but the broad dynamics are still quite scary,” Feder said in a statement. “We think housing is still a short.”
The housing market will improve slowly in the next several years as the market works through a backlog of foreclosures and a high amount of negative equity, meaning homeowners owe more on their properties than they’re worth, according to Humphries. Values probably will increase 1.1 percent over the next 12 months, Zillow said.
Initial notices of foreclosure rose 6 percent in the second quarter from a year earlier, the first annual gain since 2009, RealtyTrac Inc. said earlier this month. In the first quarter, about 11.4 million properties, or 24 percent of homes with mortgages, had negative equity, according to CoreLogic Inc.
Phoenix had the largest increase in home values, with a 12 percent gain in the first quarter, followed by Miami, where they rose 6.4 percent, Zillow said.
Among cities where values dropped, Chicago fell 5.8 percent from a year earlier, the biggest decline among the 30 largest metropolitan areas that Zillow follows. Atlanta, where prices fell 4.9 percent, had the second-largest decrease, the company said.
Zillow measures the value of 100 million U.S. homes, whether or not they sold during the quarter, and calculates the median for its index. Other gauges, such as the the S&P/Case-Shiller index, track purchase prices.