Gradual Climb of U.S. Home Prices

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The U.S. housing market appears persistent in advancing gradually. The growth rate of home prices in 20 cities showed a slow increase in the 12 months through September.

It was reported today in New York that the S&P/Case-Shiller Home Price Index indicated a 4.9 percent increase from September 2013, which is said to be the smallest gain since October 2012, a far cry from 5.6 percent rise in the year ended in August. Meanwhile, after a 5.1 percent year-to-year gain a month earlier, home prices throughout the whole nation showed a 4.8 percent growth rate.

The year 2014 witnessed a slow rate in housing price increase. A greater number of properties are being made available for purchase and investors are staying clear from the situation. Price deceleration might assist in encouraging an increase in homeownership rate, specifically among people who are buying their homes for the first time and those who have decreased chances of getting a loan, the moment there is a noticeable wage increase.

Thomas Simons, an economist at Jefferies LLC in New York, dispels the suggestion that the market is susceptible to cycles of growth and decline, sharing his view of the current market as a modestly healthier one: prices are not likely to change and the market performance is improved.

From a survey conducted by Bloomberg among 31 economists, a 4.6 percent increase in the 12 months ended in September was predicted from their average consensus, with estimated figures between 4.2 percent and 5.2 percent.

On the other hand, news of an ease up of prices was reported by a different source. The Federal Housing Finance Agency provided figures that showed minimal changes in property values in September, the lowest growth rate on record since November 2013. After a 1 percent gain, prices were observed to have increased to 0.9 percent from July to September.

Month-to-month Profitability

A 0.3 percent increase in prices (to which seasonal adjustments were made), was noted in 20 cities in September, after decreasing by 0.1 percent in August; these prices complement the Bloomberg survey median. Changes in unadjusted prices were observed to be negligible.

With Miami getting a head start at a 10.3 percent increase, followed by Las Vegas that boasts of a 9.1 percent rise, all 20 cities in the index showed higher price growth rates than the previous year. The smallest figure of year-over-year increase was shown by Cleveland with a 0.8 percent price growth rate.

Karl Case and Robert Shiller, the economists behind the S&P/Case-Shiller Home Price Index, said that based on 2001 records, the year-over-year gauge is preferred over the month-to-month data in analyzing price trends. In addition, S&P index committee chairman David Blitzer expressed that since the economy appears better compared to last year, 2015 will unfold with a steady to somewhat improved prospect for housing.

Surprising Third Quarter Growth

Alongside other subjects today, the economic growth rate in the third quarter exceeded expectations, showing an increased rate of expenditures and investments by consumers and businesses, respectively, and completing the highest growth rate within 10 years.

Based on figures from the Commerce Department, shown today in Washington, the gross domestic product (GDP) had increased at a 3.9 percent annualized rate, leaving behind its initial 3.5 percent projection. It was a pronouncement of the highest GDP growth rate since late 2003, following the second quarter’s 4.6 percent increase.

It was disclosed last week by the National Association of Realtors that sales of pre-owned homes soared to 5.26 million in October at a rate calculated over a year, the highest ever recorded. The purchase rate surpassed the 5 million mark after five months straight, driving home the fact that property transactions have gained momentum.

The increased rate of sales is occurring independent of sales made to first-time home buyers. The trade group indicated that in 18 of the last 19 months, the portion of pre-owned properties purchased by entry-level buyers stayed below 30 percent, the same buyers who, throughout history, have accounted for about 40 percent of the home market.

Mortgage Activity

Costs of borrowing for those who can apply for a mortgage loan have stayed at an all-time low. Freddie Mac in McLean, Virginia, provided data showing that the average fixed-rate mortgage with a loan term of 30 years hovered at 3.99 percent in the week ended Nov.20; a year ago the mortgage rate took hold at 4.22 percent. In November 2012, the rate decreased to 3.31 percent, the lowest ever recorded since 1971.

Atlanta-based Allan Merrill, CEO of Beazer Homes USA Inc., said that rigid rules in mortgage underwriting may have caused and impediment to home resales, but the recent shift in population demographics proved to be a sign of good things to come; buyers under age 35 as well as those who are making their first home purchase are joining the mortgage market.

Furthermore, Merrill shared from a Nov. 12 earnings report that the currently unsteady financial situation of housing recovery will not sustain. He adds that the recovery program should be given an opportunity to set high expectations for the long term and to prove that it is able to deliver, specifically to buyers of their first homes. (Joint Center for Housing Studies at Harvard University revealed that a number of 1.6 to 1.9 million new units per year is mandated by the U.S. to accommodate the housing needs of a population that continues to grow, as well as new family units that are being made.)

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