Home-price gains across the country eased a bit in June, spurring concerns that rising mortgage rates are slowing the recovery.
The Standard & Poor’s/Case-Shiller home-price index increased just over 2 percent from May to June and 12.1 percent over last year, with all 20 regions tracked by the report showing monthly and annual gains. But only six metro areas, including the Twin Cities, saw an acceleration in month-to-month price increases, according to the report released Tuesday.
“Overall, the report shows that housing prices are rising, but the pace may be slowing,” said David Blitzer, chairman of the Index Committee at S&P Dow Jones Indices. “Home buyers may be discouraged, and sharp [home-price] increases may be dampened.”
The index, though a one-month snapshot, adds to growing speculation that the housing recovery isn’t bulletproof. Mortgage rates remain below historic averages, but have crept up since hitting record lows last year.
In the Twin Cities, the index increased 2.3 percent from May to June, compared with 2.1 percent from April to May, in both cases exceeding the national average. When compared with 2012, the Twin Cities index showed a 11.5 percent gain, slightly lower than the national average.
Herb Tousley, director of real estate programs for the Shenehon Center for Real Estate at the University of St. Thomas’ Opus College of Business, wasn’t surprised by the report’s results given rising rates.
“It bears watching to see if that’s a trend that keeps going,” said Tousley, “or if it’s a monthly aberration.”
Home prices in Las Vegas soared 24.9 percent from a year earlier to lead all cities. Purchases by investors have helped drive that increase.
Other cities hit hard by the housing bust also posted stunning gains in the past year. Prices have jumped 24.5 percent in San Francisco compared with a year earlier and nearly 20 percent in both Los Angeles and Phoenix.
Yet Zillow chief economist Stan Humphries said the June report fails to reflect the impact higher rates are having on house prices. That won’t happen, he said, until the July data is released in September.
“Case-Shiller put up some big numbers in June,” Humphries said. “But more current data shows the pace of monthly home-value appreciation slowed in both June and July, likely as a result of mortgage rate increases.”
Adding to those concerns, the U.S. Commerce Department said Friday that sales of new homes across the country had begun to cool, falling 13.4 percent compared with the previous month. That was the biggest decline in more than three years.
Still, the fundamentals are in favor of continuing improvements. Job growth in the Twin Cities metro has outpaced the nation, helping a growing number of homeowners avoid foreclosure. As a result, consumer confidence is on the rise. The Conference Board’s index of sentiment, also released Tuesday, exceeded expectations by rising to 81.5 from a revised 81 the prior month.
The median price of a nondistressed home in the Twin Cities was $224,950, up 3.7 percent from last year, according to the University of St. Thomas residential real estate price report index.
Humphries said home values nationwide are rising about 6 percent per year, which leaves ample head room to accommodate the moderating influence introduced by climbing mortgage rates.
“Over the next year, home-value appreciation rates will slow as investors exit the market, mortgage interest rates rise, negative equity falls, builders ramp up and more homes come on the market,” he said.