December home prices up 4.5%

Tight inventory revs up index after year of slowing down

A sign advertises a house for sale last month in Los Angeles. The Standard & Poor’s/Case-Shiller home price index rose 4.5 percent in December compared with 12 months earlier.
A sign advertises a house for sale last month in Los Angeles. The Standard & Poor’s/Case-Shiller home price index rose 4.5 percent in December compared with 12 months earlier.

WASHINGTON -- Home prices in 20 U.S. cities appreciated at a faster pace in the year that ended in December, a sign that a limited supply is forcing up property values.

The Standard & Poor's/Case-Shiller 20-city home price index, released Tuesday, increased 4.5 percent in December compared with 12 months earlier. That is up from 4.3 percent in November and the same as October's annual increase. The small gain comes after price increases had slowed for 12 straight months.

Moderate price gains bode well for homeowners, improving their financial picture and boosting confidence. At the same time, a surge that outpaces wage growth and consumer price inflation could have undesired effects such as making homes unaffordable to young or first-time buyers and pushing them out of the market.

"If you continue to bounce around here in the 4.5 percent range for some time, that's a good, healthy pace," said Tom Simons, an economist at Jefferies LLC in New York. "That's enough to keep people that are in the market happy and not enough to keep people out of the market, especially if we get some increase in wages."

Americans are listing fewer homes for sale, pushing up prices and keeping many houses out of reach for would-be buyers.

Still, the smaller price gains are more sustainable and less harmful for potential buyers than last year's double-digit increases.

The Case-Shiller index covers roughly half of U.S. homes. The index measures prices compared with those in January 2000 and creates a three-month moving average. The December figures are the latest available.

The number of homes for sale in December was equal to just 4.4 months of sales, the lowest level in nearly two years. Six months of supply is typical for a healthy housing market.

"The housing recovery is faltering," said David Blitzer, chairman of the S&P's index committee. "While prices and sales of existing homes are close to normal, construction and new home sales remain weak."

All 20 cities reported higher prices than a year earlier. The biggest gains were in San Francisco, where prices rose 9.3 percent, and Miami, where they jumped 8.4 percent. Chicago reported the smallest gain, at 1.3 percent.

December's price rise is far ahead of wage gains. Average hourly wages rose at a faster pace in January compared with the previous month but were just 2.2 percent higher than a year ago. Pay gains have been stuck largely at that level for most of the five years since the recession.

Sales of existing homes fell last year after two years of steady recovery. That has led many economists to forecast a rebound in sales in 2015, but so far there are few signs of it.

In January, existing home sales tumbled 4.9 percent to a seasonally adjusted annual rate of 4.82 million, the slowest pace in nine months, the National Association of Realtors said Monday.

The construction of new homes fell 2 percent in January, the Commerce Department said last week.

Lower mortgage rates and strong job growth may yet spur more sales later this year. The average 30-year fixed mortgage rate was 3.76 percent last week, according to the mortgage giant Freddie Mac, the Federal Home Loan Mortgage Corp. That has ticked up in recent weeks but is far below the 4.33 percent average from a year ago.

Wider credit availability will mean growth for builders such as Scottsdale, Ariz.-based Taylor Morrison Home Corp.

"We are excited to see incremental positive changes in the mortgage market that should continue to move the recovery forward," Sheryl Palmer, the company's chief executive officer, said on a Feb. 4 earnings call. Signs of first-time home buyers and re-entrants to the market suggest future growth.

Employers have ramped up hiring, encouraged by strong growth last spring and summer. The U.S. economy added more than 1 million jobs from November through January, the best three-month period in 17 years. More Americans earning paychecks should eventually push home sales higher.

Information for this article was contributed by Christopher S. Rugaber of The Associated Press and Nina Glinski and Chris Middleton of Bloomberg News.

Business on 02/25/2015

Upcoming Events