Rates Up, Home Prices Up, Inventory in Short Supply
Despite rising home loan interest rates, home prices continue to surge higher. The latest read from a monthly CoreLogic report shows home values, including those of distressed properties, up 12.4 percent from July 2012, which was higher than both May and June's annual increases, and is the 17th consecutive month of annual gains for home values nationally.
Prices were up 1.8 percent month over month, according to the report. "Looking ahead to the second half of the year, price growth is expected to slow as seasonal demand wanes and higher mortgage rates have a marginal impact on home purchase demand," said Mark Fleming, chief economist for CoreLogic, in a release.
Home loan rates have trended higher on expectations that the Federal Reserve will begin to taper its investments in mortgage-backed securities. In a surprise move, in its September meeting of the Federal Open Market Committee, the Fed decided not to taper its purchases due to recent economic reports that were worse than expected. Fed Chairman Ben Bernanke stated that tapering could "possibly" come later this year.
Despite this, home prices are also trending higher in part due to the fact that there are fewer distressed properties for sale. Excluding distressed sales, prices were up 11.4 percent year over year. Distressed properties have seen big price jumps in the pastyear, as investors fight for the remaining bargains.
Interestingly enough, some markets hit hardest by the housing crash have seen the biggest price gains: Nevada home prices were up 27 percent from a year ago, California was up 23 percent and Arizona up 17 percent. Completed foreclosures nationally were down 25 percent, according to the report.
Prices are also getting a boost from the sheer lack of homes for sale. Inventories are way down in local markets across the nation, and home builders are producing fastenough to meet new demand.
While the inventory situation is not expected to ease very much over the next year, home prices are expected to weaken slightly, as higher rates and weak income growth put a cap on just how high prices can go.
In summary, inventory is down, home prices are up and economic data in the coming weeks and months will be a key factor in whether the Fed begins tapering its Bond purchases later in the year or in 2014. This timing could play a big role in the direction Bonds and home loan rates move in the months ahead.