Home prices in 20 U.S. cities climbed at a faster pace than forecast in the year ended February, a sign the housing industry may be gaining momentum amid low borrowing costs and continued job growth.
The SP/Case-Shiller index of property values increased 5% from February 2014, the biggest year-to-year gain since August, after rising 4.5% in the year ended in January, the group said today in New York. The median projection of 28 economists surveyed by Bloomberg called for a 4.7% year-over-year advance. Nationally, prices rose 4.2%.
Higher real estate prices may persuade more homeowners to put their properties on the market, boosting the limited inventory that’s been holding some prospective buyers back. More supply, in addition to continued gains in the labor market and looser lending standards, will be needed to help the housing market accelerate after showing inconsistent progress.
“It’s a matter of constrained supply thats pushing the home prices up,” Millan Mulraine, deputy head of U.S. research and strategy TD Securities USA in New York, said before the report. “They’re in a bit of a sweet spot right now.”
Economists’ estimates in the Bloomberg survey ranged from gains of 4.4% to 5.3%. The SP/Case-Shiller index is based on a three-month average, which means the February figure was also influenced by transactions in January and December.
Home prices in the 20-city index adjusted for seasonal variations increased 0.9% in February for a third consecutive month. The Bloomberg survey median called for a 0.7% gain.
All 20 cities in the index showed a year-over-year increase, led by gains of 10% in Denver and 9.8% in San Francisco. Washington showed the smallest increase of 1.4%.
The year-over-year gauge, which uses records dating back to 2001, provides better indications of trends in prices, according to the SP/Case-Shiller group. The panel includes Karl Case and Robert Shiller, the economists who created the index.
Property values accelerated in 17 cities in February from the prior month, while San Diego, Las Vegas and Portland, Ore., decelerated. Prices in two cities, Denver and Dallas, have surpassed their pre-recession peaks.
“Home prices continue to rise and outpace both inflation and wage gains,” David Blitzer, chairman of the SP index committee, said in a statement. “If a complete recovery means new highs all around, we’re not there yet.”
Property prices rose in all 20 cities in February from a month earlier, according to the seasonally adjusted data, led by a 3.3% jump in San Francisco. Cleveland showed the smallest increase at 0.4%.
A tight supply of homes may be responsible for some of the firming in home prices. At the current pace, it would take 4.6 months to sell the 2 million existing homes for sale in March, compared with 4.7 months at the end of February, according to the National Association of Realtors. A five- to six-month supply is considered more normal, the group has said.
Purchases of previously owned homes climbed in March by the most in four years, with houses snapped up in 52 days on average, according to the Realtors group. Meanwhile sales of new homes are still choppy, with purchases slumping 11.4% to a four-month low in March, Commerce Department figures showed last week.
Continued low borrowing costs will be needed to make buying a home an affordable option for many households. The average rate on a 30-year fixed mortgage was 3.65% in the week ended April 23, the lowest in more than two months, according to Freddie Mac data. That compares to a peak of 4.53% in 2014.
At the same time, continued gains in the labor market will give Americans the means to buy, while a sense of job security may make them more comfortable taking the plunge. While payrolls grew by just 126,000 in March, the weakest since December 2013, that followed 12 straight months of job gains of more than 200,000. Meanwhile the number of Americans getting fired is hovering near the lowest levels in almost 15 years.
A pickup in wages is needed to further shore up the finances of Americans and make it “easier for would-be homebuyers to afford a mortgage,” said Richard Dugas, chief executive officer of homebuilder PulteGroup Inc. said in an April 23 earnings call.
“Given the acceleration in U.S. housing demand in the early stage of the spring selling season, our expectations are that the strengthening of demand is sustainable and should drive better new home sales for all of 2015,” he said.