Rising Home Prices Crack Foundation of U.S. Real-Estate Recovery

A crack is starting to form in the foundation of the U.S. housing-market recovery that extends beyond bad winter weather.

“A rise in interest rates, combined with the rise in home prices, has quickly and surprisingly made a lot of markets unaffordable for home buyers,” said Daren Blomquist, vice president at property-data firm RealtyTrac Inc. in Irvine, California.

Sales of new homes slumped 14.5 percent to a 384,000 annualized pace, the weakest since July, Commerce Department data showed today in Washington. Purchases fell in three of four regions, including a 16.7 percent decline in the West to the lowest level since January 2012.

The data are better examined using a three-month average, which stood at a 434,000 rate in March. While down from 446,000 at the end of 2013, home sales are still higher than the average 388,000 in the third quarter.

Lower limits on loans guaranteed by the Federal Housing Administration, a plunge in distressed sales and price gains that have outstripped the rest of the country have all had outsized impact on the decrease in the West, Ted Wieseman, an economist at Morgan Stanley in New York, said in a research note.

An increase in borrowing costs in the second half of last year still may be holding back purchases. The average 30-year, fixed-rate mortgage was at 4.27 percent in the week ended April 17, up from 3.35 percent in May of 2013, according to data from Freddie Mac in McLean, Virginia.

Higher property values are also deterring some would-be buyers. The median sales price of a new house rose 12.6 percent from March 2013 to a record $290,000, today’s report showed.

Sales in the West are little changed from the end of 2011 at the same time prices have soared 28 percent in that region.

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