Case-Shiller: 2 factors needed to keep home prices strong

National home prices continue momentum

The 10-city and 20-city composites posted returns of 13.1% and 12.9%, respectively, in the twelve months ending February 2014, the latest S&P/Case-Shiller Home Price Indices report said.

“Going forward, if home prices continue to rise, there are a limited number of options to offset the rising cost of purchasing a home: 1) an equally sizable increase in wages or 2) a marked reduction in credit restrictions," Lindsey Piegza, chief economist with Sterne Agee, said.

“Given the significant slack in the labor market, the latter option of easing lending standards appears to be the most probable and fast-acting solution,” Piegza continued. 

Meanwhile, the 10-city and 20-city composites remained relatively unchanged month-over-month.

However, 13 cities of the 20-city composite did witness lower annual rates in February, with Las Vegas as the leader posting 23.1% year-over-year compared to 24.9% in January. 

“Home prices continue to gain momentum, a trend confirmed by the latest March home sales reports showing home values continued to rise throughout the first quarter,” Piegza said.

But as a result, Piegza said home prices continue to outpace wage growth, with many potential homebuyers getting priced out the of the market, leading to a decline in sales activity.

Month-over-month, 13 of the 20 cities declined in February, with Cleveland posting the largest decline of 1.6% followed by Chicago and Minneapolis at -0.9%.

Las Vegas posted -0.1%, marking its first decline in almost two years, and Tampa showed its largest decline of 0.7% since January 2012.

“Despite continued price gains, most other housing statistics are weak,” David Blitzer, chairman of the Index Committee at S&P Dow Jones Indices, said.

“Sales of both new and existing homes are flat to down. The recovery in housing starts, now less than one million units at annual rates, is faltering. Moreover, home prices nationally have not made it back to 2005. Mortgage interest rates, which jumped in May last year and are steady since then, are blamed by some analysts for the weakness. Others cite difficulties in qualifying for loans and concerns about consumer confidence. The result is less demand and fewer homes being built,” Blitzer added.

Looking across the region, three California cities and Las Vegas recorded the strongest increases over the last 12 months as the West continues to lead.

Denver and Dallas remain the only cities that reached new post-crisis price peaks, while New York, Washington and Boston experienced some of the slowest year-over-year gains.

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