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Economy

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Rise in home prices eases

Sudden spike in mortgage rates cooling off demand

– Home prices across the country rose at a slower pace in June, a sign that higher mortgage rates may finally be tempering the speed of price gains, analysts say.

Nationally, home prices were up 12.1 percent from a year ago and 2.2 percent from May, according to the Standard & Poor’s Case-Shiller index. But for the first time in more than a year, the 12-month increase was smaller than in the previous month.

Mortgage rates have been climbing steadily over the past three months, with 30-year rates reaching a two-year high of 4.58 percent last week, according to data from mortgage giant Freddie Mac. New-home sales for July also declined significantly, falling by the most in three years in response to rising rates, according to a U.S. Census report last week.

An inventory crunch and high demand have driven home prices up over the past year, as buyers competed to find homes and lock in low mortgage rates. But rates are at the level where some buyers may no longer find a mortgage affordable, said Erik Johnson, senior U.S. economist at IHS Global Insight.

“We’ve reached the point with rates where that is affecting home prices and the purchase decisions of home buyers,” he said.

The price increases over the past few months caused chatter about the possibility of another bubble, Johnson said, so this month’s retreat was not necessarily a bad thing.

The housing market has been a pillar in the economic recovery. In recent months, mortgage rates have been driven higher on expectations that the Federal Reserve will begin tapering its massive stimulus program this year. The Fed’s measures, which include buying bonds, have kept interest rates low.

The rise in interest rates and consequent slowdown in home prices is largely in line with the expectations of many analysts but not significant enough to pose a threat to the housing recovery, said David Blitzer, managing director and chairman of the index committee at Standard & Poor’s.

Prices rose in all 20 cities that the index tracks, with San Francisco and Las Vegas posting the biggest increases from a year ago, 24.5 percent and 24.9 percent respectively. In Washington, D.C., prices were up 1 percent from May and 5.7 percent from a year ago.

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