Home Prices Moderate, Increasing Market Stability

U.S. home prices rose in the latest quarter, but they are not rising as quickly, according to new data from the S&P/Case-Shiller National Home Price Index, but that might be more helpful to the housing recovery.

The S&P index, a measure of U.S. home prices based on 20 of the major metropolitan areas, rose 2.2 percent in June, but not quite as fast as the 2.5 percent increase in May. Only six cities – Charlotte, Cleveland, Las Vegas, Minneapolis, New York and Tampa – saw their prices rise faster in June than in May.

“The monthly city by city data show the pace of price increases is moderating,” said David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices in a statement. He added, “Thirteen out of twenty cities saw their returns weaken from May to June. As we are in the middle of a seasonal buying period, we should expect to see the most gains. With interest rates rising to almost 4.6%, home buyers may be discouraged and sharp increases may be dampened. Other housing news is positive, but not as robust as last spring.”

As prices continue to rise, many underwater mortgage borrowers are lifted back into positive equity territory. Since underwater homeowners are much more likely to default, this is definitely good news. As these borrowers regain equity they have the freedom again to sell their homes and increase the inventory on the market. This will help stabilize price growth, making home-buying more achievable for many. And “despite recent increases in mortgage interest rates,” says Blitzer, “affordability is still good as credit qualifications have eased somewhat.”

In the end a slower pace of price growth may be just the medicine the doctor ordered.

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