Home prices are rising at the fastest rate in seven years, with some communities seeing double-digit gains, as buyers are returning to a market where the number of properties for sale is in short supply. Prices increased 9.3% in February from a year earlier while mortgage-interest rates hovered near record lows, according to the Standard & Poor's/Case-Shiller index that tracks home prices in 20 major metropolitan areas. All 20 cities posted year-over-year gains for the second consecutive month, which hasn't happened since 2005, before the crash.
The Federal Reserve, whose policies have kept rates low, has a lot riding on the housing-market rebound. The encouraging data come as other aspects of the recovery disappoint: Hiring remains patchy and the unemployment rate, at 7.6% in March, is more than 2½ percentage points above where it was when the recession started in late 2007. Consumer-spending data this week, while solid, pointed to some second-half headwinds. The housing rebound is also closely tied to the Fed's campaign to lower interest rates, which has sped along the recovery in two key ways. First, by reducing yields on a range of assets, the Fed has made housing a more attractive investment. Investors of all sizes have been buying homes, often with cash, and converting them into rentals. Lower mortgage rates spurred by the Fed have also created urgency for traditional buyers, and they have made buyers who take out mortgages more immune to recent price increases. Even with the gains in home prices, housing is more affordable than at any time in the past 30 years because mortgage rates are so low.
At current mortgage rates near 3.5%, home values would need to rise by 32% nationally—and by as much as 48% in markets across the Midwest and north Florida—for affordability to return to its long-run average, according to an analysis by John Burns Real Estate Consulting in Irvine, Calif.
Entire article by Nick Timiraos Wall Street Journal