Home prices in large U.S. cities rose sharply in June, marking the fourth consecutive double-digit gain for the nation’s leading home price index.
The Standard & Poor’s Case-Shiller index for the nation’s biggest 20 cities was up 2.2% from May and 12.1% over the same month a year earlier. Every city tracked by the measure posted an increase in June, but only six cities saw prices rising faster in June than in the prior month, indicating that the torrid pace of gains may ease.
More than half of the cities posted double-digit gains when compared to the same month a year ago. Western cities lead the way with Las Vegas up 24.9%, San Francisco 24.5% and Los Angeles 19.9%.
“The Southwest and California have consistenly led the recovery,” David M. Blitzer, chairman of the index committee at S&P, said. “Overall, the report shows that housing prices are rising but the pace may be slowing.”
He noted that given that June is one of the peak buying months, strong gains should be expected. But housing gains in coming months should be tempered, particularly with mortgage interest rates rising.
The housing recovery began last year as foreclosures plunged and buyers chased deals on homes and mortgages. Investors of all stripes—from small syndicates of wealthy individuals to large Wall Street players—have played a huge role in the housing recovery, snapping up many of the cheapest homes to flip or to rent out.
Many experts believe that home prices can’t continue to shoot up at this pace for long without accompanying growth in jobs and wages. Rising interest rates and relatively tight access to mortgage credit could put a check on runaway prices.
“When interest rates start rising and housing prices start rising, we will get to the point where both have risen enough so they are no longer attractive,” said Anthony Sanders, a professor of real estate finance at George Mason University in Virginia. “We are probably going to see the market cool down quite a bit.”
The Case-Shiller data tend to lag behind other housing indicators and there is some indication of a slowdown in price appreciation amidst still robust demand for homes. The National Assn. of Realtors recently reported that the national median home price was $213,500 last month.
That was a slight slip from the $214,200 median in June, but up 13.7% from July 2012. The real estate group also reported that housing inventory rose 5.6% last month to total 2.28 million homes available for sale, representing about a five-month supply at the current sales pace. Economists typically consider six months of supply to be a balanced market.