Home Prices Post Another Big Gain In May, Best Boost Since 2006

U.S. home prices posted their best year-over-year gain since March 2006 in May, according to the latest reading from the S&P/Case-Shiller indexes.
Each of the 20 cities that make up the 20-city composite index posted annual and sequential gains, paced by the Southwest and West. San Francisco posted a 24.5% seasonally-adjusted gain over the prior year, followed by Las Vegas’ 23.3% gain and Phoenix’s 20.6% gain. New York posted the weakest annual gain, up 3.3%.

The 20-city index itself was up 12.2% year-over-year, and the 10-city composite rose 11.8%.
The May Case-Shiller report comes amid concerns that home prices are rising too far too fast due to the influx of investment dollars into the housing market. With institutional investors like Blackstone Group and others snapping up homes — millions of them in some cases — there is concern that owner-occupants have been squeezed out of the market, an issue that will come into starker relief with mortgage rates rising over the last two months.
Coming off a massive real estate bust, prices in many cities are still south of their pre-crisis peaks, but Tuesday morning’s figures are still rankling some housing exports.
Zillow Z +7.27% senior economicst Svenja Gudell called the latest three-month run of better than 10% gains in nationwide home prices “not normal, not sustainable and, frankly, not very believable.”
Homes that were snapped up out of the foreclosure process are being resold, “leading to inflated and misleading markups in price,” Gudell says, urging homeowners not to assume reports like the Case-Shiller figure mean their own homes have increased sharply in value.
“Looking ahead, a combination of rising mortgage interest rates, flagging investor demand and more inventory entering the market will all help to moderate the pace of home value appreciation and stabilize the market,” Gudell adds.

High Frequency Economics chief U.S. economist Jim O’Sullivan takes a different tack, arguing that higher prices will have a beneficial read-through elsewhere in the economy, including on consumer spending, and could also loosen up lending standards “because of less chance of mortgages turning delinquent.”

Home builders, which for the most part reported higher average selling prices for the first two quarters of 2012, were mostly higher Tuesday morning. PulteGroup PHM -2.38%, Toll Brothers TOL -0.95% and KB Home made slim gains, while DR Horton DHI -1.57% opened slightly lower.

Article on Forbes.com by

Steve Schaefer Forbes Staff