Home-price index shows 13.6% climb

Home prices in 20 U.S. cities rose in October from a year before by the most in more than seven years even as price gains slowed in most U.S. cities from September to October, suggesting the increases are leveling off.

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, according to a report released Tuesday by the group. 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.

“There’s certainly room for home prices to continue rising in the coming year,” said Dana Saporta, an economist at Credit Suisse in New York, who projected a 13.7 percent year-over year advance in prices. “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.”

The Case-Shiller index covers about half of U.S. homes. It isn’t adjusted for seasonal variations, so the change partly reflects slower buying in the fall. The index measures prices compared with those in January2000 and creates a three-month moving average. The October figures are the latest available.

Monthly price gains slowed in 18 of the 20 cities tracked by the index. And prices declined in nine cities, including Chicago, Denver and Washington.

For the year, prices are still strong, reflecting big gains in earlier months. The 13.6 percent gain is the biggest since February 2006.

“Annual returns have been in double-digit territory since March 2013 and increasing,” said David Blitzer, chairman of the S&P Dow Jones index committee. “However, monthly numbers show we are living on borrowed time and the boom is fading.”

Home prices adjusted for seasonal variations rose 1 percent in October from the previous month, the same as in September. That matched the Bloomberg survey median estimate.

The month-over-month price gains were led by Miami, which had 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 might be harder to come by as Federal Reserve policymakers trim stimulus, causing mortgage rates to climb. Fed officials said Dec. 18 that they will trim monthly bond purchases to $75 billion from $85 billion starting this month.

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, said 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 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 last month.

Home resales should have reached 5.1 million in 2013, the best total in seven years, the Realtors forecast. That’s 10 percent higher than 2012. But it is still below the 5.5 million that is consistent with healthier housing markets.

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

A report from the Realtors Association on Monday signaled the slowdown might have run its course. Contracts 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, after a revised 474,000 rate in October that was the strongest since July 2008, Commerce Department data showed last week.

Many economists say the Case-Shiller figures overstate recent price gains because they include foreclosures. Foreclosed homes usually sell at steep discounts. As the proportion of those sales declines, the index rises more sharply.

Information for this article was contributed by Josh Boak of The Associated Press and Michelle Jamrisko, Lorraine Woellert and Chris Middleton of Bloomberg News.

Business, Pages 25 on 01/01/2014

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