Home prices in 20 U.S. cities climbed at slower pace in June

Better Gauge

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.

All 20 cities in the index showed a year-over-year increase, paced by gains of 24.9% in Las Vegas and 24.5% in San Francisco. New York showed the smallest increase at 3.3%.

Recent data signal rising mortgage rates may prompt buyers to hold back on future purchases as the Federal Reserve attempts to wean the economy from monetary stimulus without compromising growth. The average rate on a 30-year, fixed-rate purchase loan was 4.58% in the week ended Aug. 22, the highest in two years, according to McLean, Virginia-based Freddie Mac. The 30- year rate reached a record-low 3.31% in November.

“Housing prices are rising but the pace may be slowing,” David Blitzer, chairman of the S&P index committee, said in a statement. “With interest rates rising to almost 4.6%, home buyers may be discouraged and sharp increases may be dampened.”

Home Sales

Sales of new U.S. homes plunged 13.4% in July, the most in more than three years, to a 394,000 annualized pace, Commerce Department figures showed last week. The median price of a new home increased 8.3% last month from a year ago to $257,200.

Purchases of previously owned homes climbed a more than forecast 6.5% to a 5.39 million annualized rate last month, according to Aug. 21 figures from the National Association of Realtors, as buyers rushed to lock in mortgage rates before they rose any more.

Gains in employment will probably sustain demand, supporting builder confidence that reached the the highest level since November 2005 this month, said David Crowe, chief economist at the National Association of Home Builder in Washington. At the same time, inventories remain tight, exerting upward pressure on home values.

“Builders are convinced stability has returned,” Crowe said. “The underlying demand will continue to increase because the economy will expand. That will overwhelm any interest rate impact.”

Home Improvement

Expansion in housing has burnished the outlook for home- improvement retailers such as Mooresville, North Carolina-based Lowe’s Cos., which posted profit that topped analysts’ estimates in the quarter ended Aug. 2 and raised its forecast for the year as the recovery encourages spending on remodeling.

“As home prices started to move up, I think it does have homeowners feeling gradually better about willingness to spend, particularly as you get to big-ticket durables,” Chief Executive Officer Robert Niblock said on an Aug. 21 conference call. Still, “the wildcard is interest rates and the impact that has on housing affordability, so we’re kind of watchful of that potential impact.”

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