Home Prices in U.S. Increased by Most Since 2006 in May
Home prices rose in May by the most in more than seven years as the recovery in U.S. residential real estate gained momentum.
The S&P/Case-Shiller index of property values climbed 12.2 percent from May 2012, the biggest 12-month gain since March 2006, after advancing 12.1 percent a month earlier, a report showed today in New York. The median projection of 31 economists surveyed by Bloomberg called for a 12.4 percent advance.
Historically low borrowing costs, short supply and improving job market are boosting demand for residential property and driving prices up. The climb in home values is also bolstering household finances, which may spur consumer spending, the largest part of the U.S. economy.
“We continue to look forward to upward momentum” in the housing market, said Anika Khan, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, a subsidiary of the largest U.S. mortgage lender. “We still have historically low inventory levels.”
Stock-index futures held earlier gains after the report. The contract on the Standard & Poor’s 500 Index maturing in September climbed 0.3 percent to 1,686.9 at 9:23 a.m. in New York as companies from Eastman Chemical Co. to Aetna Inc. raised their forecasts for full-year profit.
Bloomberg survey estimates ranged from increases of 10 percent to 13 percent. The S&P/Case-Shiller index is based on a three-month average, which means the May data were influenced by transactions in March and April. April’s reading for the year-to-year gain was unrevised.
Home prices adjusted for seasonal variations rose 1 percent in May from the prior month, compared with a 1.7 gain in April. The Bloomberg survey median called for a 1.4 percent advance.
The year-over-year gauge, which includes records going back to 2001, provides a better indication of price trends, the group has said.
Property values in Dallas and Denver reached records in May, the first time any city had surpassed its precession peak, the report said.
“The overall report points to some shifts among various markets: Washington DC is no longer the standout leader and the eastern Sunbelt cities, Miami and Tampa, are lagging behind their western counterparts,” David Blitzer, chairman of the S&P index committee, said in a statement.
The Case-Shiller index coincides with other reports this month that signal continued strength and price appreciation in the housing market. Sales of previously owned homes sales fell unexpectedly in June, to a 5.08 million annualized rate, the second-strongest since November 2009, according to the National Association of Realtors. The median price climbed 13.5 percent, the seventh consecutive month that property values advanced more than 10 percent year over year.
The median selling price of a new home appreciated 7.4 percent in June to $249,700 from $232,600 a year earlier, figures from the Commerce Department showed last week.
That may be one reason why builders are gaining confidence. The National Association of Home Builders/Wells Fargo sentiment index climbed in July to the highest since January 2006. The gauge has jumped 13 points in the latest two months, the biggest back-to-back advance since January-February 1992.
At the same time, rising borrowing costs may slow the recovery. The average rate on a 30-year fixed mortgage was 4.31 percent in the week ended July 25, up from 3.49 percent a year earlier according to data from Freddie Mac. The rate reached a record low of 3.31 percent in November.
The sustained increase in demand has continued to drive earnings growth for companies such as home builder Meritage Homes Corp. of Scottsdale, Arizona. The second quarter was its seventh consecutive period of year-over-year growth in home closing revenue, the company said.
“As the U.S. economy improves and creates jobs, demand for new homes should remain strong, especially in light of the shortage of used homes for sale,” Steven Hilton, chairman and chief executive officer, said on a July 24 earnings call. “While buyers may conclude that they missed the absolute bottom of the market in terms of prices and interest rates, they also recognize that both are still a bargain in terms of the amount of house you can buy at a given income level.”
Payroll gains averaged 202,000 a month in the first half of this year, up from 180,000 in the final six months of 2012, according to figures from the Labor Department. Employers added another 185,000 workers to staff counts in July after a 195,000 gain the prior month, and the jobless rate fell to 7.5 percent from 7.6 percent, according to the median forecast of economists in a Bloomberg survey ahead of an Aug. 2 government report.
To contact the reporter on this story: Alexandria Baca in Washington at email@example.com
To contact the editor responsible for this story: Christopher Wellisz at firstname.lastname@example.org