Home prices show impressive annual gainsby Tim Manni
The S&P/Case-Shiller Home Price Indices, a 10- and 20-city home price index, reported gains of 2.5 percent and 2.4 percent, respectively, on Tuesday. However, the biggest gains were reflected in the annual growth of both indices, increasing by 11.8 percent and 12.2 percent, respectively. These yearly gains were the largest seen since May 2006.
“Home prices continue to strengthen,” David M. Blitzer, chairman of the index committee at S&P Dow Jones Indices, said in a release. “Two cities set new highs, surpassing their pre-crisis levels and five cities–Atlanta, Chicago, San Diego, San Francisco and Seattle–posted monthly gains of over three percent, also a first time event.”
May was very different than July
As we review at the Case-Shiller gains, it’s important to take the May gains in context with what was happening at the time and what has happened since. Keith Gumbinger did just that in last week’s Market Trends newsletter:
Here’s an interesting way to consider this. In May, the median home price was $262,700, and the average conforming 30-year fixed-rate mortgage was 3.68 percent. That combination produces a $1,206 monthly payment.
Despite a substantial rise in rates to 4.20 percent in June, the fall in the median price to $235,700 means the payment actually declines to $1,153 each month, so new homes were arguably more affordable in June than May.
Of course, it isn’t this simple, since the mix of homes sold (and where they are) changes from month to month, but the ability of a builder to adjust the price of a new home (within reason) means that affordability can be preserved.
It will be interesting to see how the Case-Shiller numbers change as more recent reports are released. Mortgage rates rose substantially from May to July. Even though affordability–despite rising mortgage rates–was preserved thanks to lower home prices, will we have to wait and see how this trend bears out in future Case-Shiller reports.