Home prices in May turned in their best annual gains in more than seven years and set new records in Denver and Dallas, a closely-watched real estate barometer showed Tuesday.
The housing market extended a string of recent monthly gains as May prices rose 12.2% from a year ago, according to the Standard & Poor’s/Case-Shiller 20-city composite index.
From April, prices were up 2.4% for the 20-city composite, Case-Shiller said.
When adjusted for seasonal factors, however, the month-to-month gain was 1%. That’s strong, but smaller than in previous months, which should reduce worries about a housing market bubble forming, says Jed Kolko, Trulia economist.
Home prices in Dallas and Denver surpassed their pre-financial crisis peaks set in 2007 and 2008, marking the first time since the housing market’s bust that any city in the index has set a new all-time high.
The arrival of new peak prices underscores how far the housing recovery has come in some markets that were not hit as hard by the housing bust as others.
When not adjusted for seasonal factors, five cities — Atlanta, Chicago, San Diego, San Francisco and Seattle — posted monthly gains of more than 3%.
The report points to some shifts, however. Washington, D.C., is no longer the standout leader for price appreciation and Miami and Tampa are lagging behind their western counterparts, says David Blitzer, chairman of S&P’s index committee.
San Francisco home prices saw the strongest year-over-year gain, up 24.5%, followed by Las Vegas, up 23.3%, and Phoenix, up 20.6%.
The weakest increases were in New York, up 3.3%; Cleveland, 3.4%; and Washington, D.C., 6.5%.
Compared with the mid-2006 peak for the 20-city index, home prices are still down about 25%.
All 20 cities showed positive monthly returns for May, with price acceleration picking up in about half of the markets.
When adjusted for seasonal factors, however, prices dipped in May from April in Cleveland and Minneapolis.
Home price gains are being supported by tight inventories.
The supply of existing homes for sale edged up slightly in June to 5.2 months, from 5 months in May, the National Association of Realtors says. That’s still low, given that Realtors generally consider a six-month to seven-month supply to be a balanced market between buyers and sellers.
The months’ supply of new homes for sale, another measure of inventory, dropped in June to match its nine-year low.
Meanwhile, distressed homes accounted for 15% of existing home sales in June, NAR says, down from 18% in May. Distressed homes tend to sell at a discount to non-distressed homes, so having fewer of them may inflate price gains.
One reason that inventory is so tight is almost a fifth of homeowners with mortgages remain underwater. They can’t easily sell their homes because they owe more on their mortgage loan than their homes are worth. As prices rise, economists expect more properties to be listed for sale, which should slow price gains.
Rising mortgage interest rates are also beginning to affect the still-strong housing market recovery. One of the first signs of that was a dip in pending home sales in June from May, NAR says.
Still, mortgage interest rates remain very low. The average for a 30-year fixed mortgage loan was 4.31% for the week ended July 25. That was up from 3.49% a year earlier, Freddie Mac says.
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