House Prices Rose 7.7% In A Year, FHFA Reports

The Federal Housing Finance Agency (FHFA) released its findings today for the second quarter of 2013, and it spells good news for the still-struggling U.S. real estate market. The news release states that house prices rose 2.1 percent in the quarter ending June 2013, continuing a trend of recovery. The quarter’s findings marked the eighth consecutive quarterly increase.

In the 12-month period ending June 2013, national home prices increased 7.7 percent. This is a huge improvement even compared to the previous 12 months, when prices rose only 3.8 percent.

Every part of the country saw recent price increases. The year was especially good for those looking to sell on the West Coast, where prices went up 17 percent. Even the Middle Atlantic, the least improved area in the past year, saw a modest increase of 2.5 percent.

The continuous price improvements are drawing more sellers to the market, and the number of homes for sale has been increasing all year. In July alone, 6.5 percent more houses were sold than in the previous month. That translates to a seasonally adjusted annual rate of 5.39 million home sales, the highest rate since 2009.

Such drastic improvements have even surprised experts. Under typical circumstances, rising mortgage rates force prices or sales to fall, while increasing prices tend to reduce mortgage rates. So with mortgage rates also bouncing back up, economists didn’t expect sales to stay high. Average mortgage rates are currently around 4.3 percent, already a big increase over the 3.4 percent low less than a year ago.

While this is all good news for now, experts say the improvements are unstable and that buyers shouldn’t expect the market to continue healing at such a rapid pace.

Economists predict that mortgage rates will continue to rise, while home prices will increase at lower rates. A year from now, buyers can expect to see average rates above 6 percent for 30-year fixed mortgages. This will affect other aspects of the housing market, and experts say home price increases will slow.

The current big gains in prices are temporary and they reflect the bounce from the bottom,” said Paul Diggle, a property economist at Capital Economics Ltd. in London, during an interview with Bloomberg Businessweek. “They shouldn’t be expected to continue at that pace that much longer.”

Diggle and his associates estimate that prices will rise a total of 8 percent in 2013 before increases slow to 4 percent in 2014.