Tags: housing | prices | interest | rates

CNBC: Housing Prices Have Room to Grow

By John Morgan   |   Monday, 26 Aug 2013 12:43 PM

Housing prices in the United States continue to go up in the face of rising interest rates, but there is still room for them to rise, according to a CNBC analysis.

The latest government data estimated home prices increased an average of 7.7 percent in the 12 months ended in June, and that in some areas they grew even more quickly — in California and Washington, prices jumped 17 percent.

"When you start to see interest rates rise, people are going to want to jump in," Beth Ann Bovino, deputy chief economist at Standard & Poor's, told CNBC. "All those people on the fence come back into the market. But that's a good thing."

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Higher interest rates could eventually discourage buyers and slow sales, according to CNBC. The Commerce Department said sales of new single-family homes tumbled in July by 13.4 percent from June. But sales of previously owned homes — a much larger market — rose by 6.5 percent in July to the fastest pace since November 2009, the National Association of Realtors (NAR) reported.

Lack of inventory is providing support to housing prices, CNBC argued.

The increased appetite for housing will depend heavily on whether the job market keeps recovering and whether incomes rise more, the network predicted.

Homes in most local markets appear to remain affordable by historical standards. The NAR’s “affordability index” was at 178 in June, down from a peak of 200 at the height of the housing collapse, but still considerably higher than average.

Homes are also still reasonably valued, according to estimates from Capital Economics, and remain inexpensive in relation to the cost of renting.

CNBC said there is evidence lenders have begun to “ease up a bit on credit standards as they compete for new borrowers,” which could provide another boost to housing prices.

Mortgage rates have risen sharply since May on fears that the Federal Reserve would begin tapering its extensive bond purchases, which have helped lower interest rates and stimulate the U.S. economy, Reuters reported.

But so far, higher borrowing costs appear to have had only a limited impact on the overall housing market.

At July's sales level, it would take 5.2 months to eliminate the current U.S. inventory of homes for on the market, up from 4.3 months in June, Reuters reported. A supply of six months is regarded a healthy balance between supply and demand.

Editor’s Note: Obama Blunder Spawns Massive Profit Opportunity

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