Home Prices in 20 U.S. Cities Climb by Most in Seven Years

Home prices in 20 U.S. cities rose in October from a year ago by the most in more than seven years, signaling the real-estate rebound will keep bolstering household wealth in 2014.

The S&P/Case-Shiller index of property prices in 20 cities climbed 13.6 percent from October 2012, the biggest 12-month gain since February 2006, after a 13.3 percent increase in the year ended in September, a report from the group showed today in New York. The median projection of 22 economists surveyed by Bloomberg called for a 13.5 percent advance.

A dwindling inventory of foreclosed properties has helped restrict the supply of homes for sale, pushing up prices even as higher mortgage rates cool demand. The real-estate market will probably get its next boost from gains in employment that are lifting consumer confidence in the economic expansion.

As home prices continue to rise, more and more homeowners who are underwater on their mortgages will see their financial situations improving. Just getting out of that underwater position should be a big help to the economy.

Stock-index futures held earlier gains after the report. The contract on the Standard & Poor’s 500 Index maturing in March climbed 0.2 percent to 1,838.5 at 9:19 a.m. in New York.

Estimates in the Bloomberg survey ranged from year-over-year gains of 11 percent to 14 percent. The S&P/Case-Shiller index is based on a three-month average, which means the October figure was influenced by transactions in September and August.

Monthly Increase

Home prices adjusted for seasonal variations rose 1 percent in October from the prior month, the same as in September.

The month-over-month price gains were led by Miami, which showed a 1.9 percent increase, followed by Atlanta and Detroit at 1.8 percent. Property values rose in all 20 metropolitan areas, with the smallest gain coming in at 0.3 percent in Denver.

Advances in home equity may be harder to come by as Federal Reserve policy makers begin to trim stimulus, causing mortgage rates to climb. Fed officials said on Dec. 18 they will trim monthly bond purchases intended to spur the expansion to $75 billion from $85 billion starting in January.

Fed Policy

“The key economic question facing housing is the Fed’s future course to scale back quantitative easing and how this will affect mortgage rates,” David Blitzer, chairman of the S&P index committee, said in a statement. “Other housing data paint a mixed picture suggesting that we may be close to the peak gains in prices.”

Unadjusted prices climbed 0.2 percent in October from the previous month after a 0.7 percent gain in September.

The year-over-year gauge, which uses records dating back to 2001, provides a better indication of price trends, according to Karl Case and Robert Shiller, creators of the index.

All 20 cities in the index showed a year-over-year gain, led by a 27.1 percent advance in Las Vegas. Values climbed 10.9 percent in Chicago, its biggest advance since 1988. Charlotte and Dallas showed their largest increases in record-keeping going back to 1987 and 2000, respectively.

Property values are climbing even as rising mortgage rates cool demand. Sales (NHSLTOT) of previously owned homes declined for the third consecutive month in November, reaching the lowest level of the year, figures from the National Association of Realtors showed earlier this month.

Mortgage Rates

The average rate for a 30-year fixed mortgage was 4.48 percent in the week ended Dec. 26, compared with 4.1 percent at the end of October, according to McLean, Virginia-based Freddie Mac. It was at 3.35 percent a year earlier.

A report from the real-estate agents’ group yesterday signaled the slowdown may have run its course. Contracts (USPHTMOM) to purchase previously owned homes rose last month for the first time since May. Economists consider pending home sales a leading indicator because they track contract signings. Existing-home sales are tabulated when a deal closes, usually a month or two later.

Other parts of the market are rebounding. Purchases of new homes exceeded projections in November, holding near a five-year high. Sales declined 2.1 percent to a 464,000 annualized pace, following a revised 474,000 rate in October that was the strongest since July 2008, Commerce Department data showed last week.

Housing Starts

Builders began work on more houses in November than at any time in the past five years to try to keep up with demand, other Commerce Department figures showed.

Homebuilders such as Los Angeles-based KB Home (KBH) see the rise in interest rates as a short-term “pause” for buyer demand that won’t crimp a pickup in the housing recovery next year.

“Higher mortgage rates, higher home prices and lower consumer confidence due to uncertainty in Washington triggered a pause among homebuyers who are now being more cautious,” Chief Executive Officer Jeffrey Mezger said on a Dec. 19 earnings call. “Affordability is at attractive levels, demographics remain strong and there’s pent-up demand due to delayed household formation” that will support the market in 2014.

Biggest real estate story of 2013: Homeowners gain $2.2 trillion in equity

The fact that U.S. homeowners gained $2.2 trillion in equity during the year ending Sept. 30 as home values rebounded was the “biggest story in American real estate in 2013,” but hasn’t gotten the attention it deserves, columnist Ken Harney says.

Harney says the gains are crucial because as more homeowners get out from underwater, they can sell without bringing money to the closing table, borrow against their homes to help pay for home improvements and other expenses, or refinance their mortgages.

– See more at: http://www.inman.com/wire/biggest-story-in-american-real-estate-in-2013-homeowners-gain-2-2-trillion-in-equity/!

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Experts mull over housing bubble expectations

Despite rapid increases in home prices over the past year, prices are 4% undervalued in the fourth quarter — meaning the market is nowhere near another housing bubble, Trulia (TRLA) claims in a new report.

To put it into perspective, prices were as much as 39% overvalued in the first quarter of 2008 — at the height of the bubble — then dropped to being 15% undervalued in the fourth quarter of 2011, the real estate firm says.
“If prices nationally are 4% undervalued, why are so many people worried that a new bubble is forming,” questioned Trulia chief economist Jed Kolko.
He added, “Because prices have risen quickly over the past year, and even with the recent slowdown in the past few months, rising prices stoke bubble fear.”
In October, asking prices were up 11.7% year-over-year, which is roughly the same sharp increases seen in 2004 when the housing bubble was inflating. Consequently, some market analysts believe that housing is in the depths of a bubble.
Given the fact that home prices are rising faster than real median household income as well as mortgage purchase applications, it signals the same factors experienced in the previous housing bubble, explained George Mason University finance professor Anthony Sanders.
“For the average American household, they are in a housing bubble,” he said. “For Chinese and other domestics and foreign investors, house prices are a bargain.”
However, other combat this conclusion and believe that measuring previous housing bubble metrics to today’s current industry is counterproductive.
They key is that the level of prices, relative to fundamentals, is much lower today than in 2004.
For instance, prices were 24% overvalued in 2004, compared with 4% undervalued today, Kolko pointed out.
What the market witnessed over the past two years was a bounce off the bottom after a precipitous drop in home prices – an overcorrection in a lot of markets during the downturn, explained Auction.com executive vice president Rick Sharga.
“If home prices had continued to appreciate at 10-20% a year, we would have inevitably created a new bubble,” Sharga stated.
He continued, “Instead, we’ve seen market forces behave the way they’re supposed to: rising prices and higher interest rates led to lower affordability, reduced demand, and a slowing in home price appreciation.”
At the metro level, home prices are above their fundamental value in 17 of the 100 largest cities.
Several California metros stand out for having both overvalued prices and sharp price increases, including Orange County, Los Angeles, Oakland and the Riverside-San Bernardino area,Trulia noted.
With extremely tight credit standards and the obstacles set in place for most borrowers to obtain a loan, the fuel needed to create another bubble simply doesn’t exist.
“Lending will tighten further when the qualified mortgage rule goes into place, and the economy isn’t created enough high-paying jobs to stimulate another overheated housing market right now,” Sharga said.
He concluded, “We may actually see prices decline slightly over the next two quarters before edging up again later in the year.”

Homebuilders Show Housing Recovery Hasn’t Crumbled Yet

The foundation for the housing recovery hasn’t been shaken by the threat of rising rates.

The proof ? That two of the nation’s largest homebuilders put up better-than-expected quarterly figures in a period when economists worried interest-rate concerns would sap the housing recovery’s strength.
Firstly, Lennar LEN -1.28% Corp., the largest U.S. homebuilder by market cap, says its profit rose to $120.7 million, 54 cents a share, from $87.1 million, 40 cents a share, a year earlier. Analysts predicted Lennar would earn 45 cents a share. Meanwhile, revenue jumped 45% to $1.6 billion, matching Wall Street predictions.
And KB Home, one of the smaller homebuilders concentrated mostly on the West Coast, reported a surge in profit: $27.3 million, 30 cents a share, from $3.3 million, 4 cents a share. It too beat Wall Street’s estimates, which called for 22 cents a share in earnings. Revenue shot up 29% to $549 million.
KB Home CEO Jeffrey Mezger described the housing recovery’s fundamentals as “firmly in place, supported by low inventory levels, an improving economy and positive demographic trends.” Even if mortgage costs do rise, Mezger says, the result would only be temporary. Similarly, Lennar CEO Stuart Miller admitted his company might see “bumps along the road that may impact the short-term pace of the recovery,” but he sees a long-term outlook that “remains extremely bright.”
Another welcome sign was the increase in home prices reported by the two homebuilders. KB Home said overall selling price rose 22% to $299,100, and it delivered 6% more homes. At Lennar, selling price rose 33% to $291,000, and homes delivered increased 37%.
In addition to KB Home and Lennar, other major U.S. homebuilders include D.R. Horton, the second largest by market cap, NVR Inc., and Standard Pacific.
The increase in housing prices and sales–strong signals that the recovery continues apace–was also reflected this morning in new economic data. According to the S&P/Case-Shiller composite index, home sales increased 0.6% in July, and prices rose 12.4%. The Case-Shiller surveys housing results in 20 metropolitan areas.