Home prices are continuing to improve, further evidence of the housing market's growing health.
Pricesin July rose 1.6% from June and 0.4% when adjusted for seasonalfactors, according to the 20-city Standard & Poor's Case-Shillerindex.
The increases have been broad as prices rose for the third consecutive month in all 20 cities.
Yearover year, Case-Shiller's data show home prices up 1.2%. Phoenix ledthe way with a 17% jump. After Phoenix, the biggest year-over-yeargainers were Minneapolis, up 6.4%; Detroit, up 6.2%; and Denver, up5.4%. Atlanta remained the laggard, down almost 10% year over year.
"Allin all, we are more optimistic about housing," says David Blitzer,chairman of the index committee at S&P/Dow-Jones Indices.
TheCase-Shiller report follows other recent good news about housing.Existing home sales were up 8% in August from July, single-family homestarts were also up, and foreclosures are slowing.
Consumersare more optimistic, too. The Conference Board said Tuesday itsConsumer Confidence Index this month reached its highest level sinceFebruary.
Further home price increases arelikely as long as the U.S. avoids recession, says Patrick Newport, IHSGlobal Insight economist.
He calls the recent home price gains a "game changer" for the economy and says they'll help in "small and different ways."
Oneeffect of rising home prices is they help homeowners build equity. Inthe first half of this year, 1.3 million homeowners moved from beingunderwater -- owing more on their mortgages than their homes were worth-- into positive equity status, says market researcher CoreLogic.
Fewerunderwater homes will lead to fewer defaults and enable more people torefinance and take advantage of interest rates that are still nearall-time lows. They averaged 3.55% for a 30-year fixed-rate loan for theweek ended Sept. 13, Freddie Mac says.
Increasedrefinancing will leave more consumers with more money to spend,Newport says. Higher home prices will also help home builders becausethey'll have more room to raise prices. Higher home prices may alsoboost home sales by enabling more people to sell existing homes and moveup to others, Newport adds.
Home priceincreases are likely to soften in the fall, as they typically do afterthe stronger spring and summer seasons, says Jed Kolko, economist forreal estate website Trulia. But overall, Capital Economics expects homeprices to rise 5% this year and a similar amount next year.
Prices are rising because of numerous factors, including:
Fewer distressed home sales.Distressed homes accounted for 22% of existing home sales in August,down from 31% the same time last year, the National Association ofRealtors says. Distressed homes typically sell at a discount to othersand affect neighboring home values.
Lower inventory.The number of homes for sale in August nationally was at a 6.1-monthsupply, down from an 8.2-month supply a year earlier, NAR says. Ingeneral, a six-month supply is considered a balanced market.
Insome cities, especially in the West and in Florida, the inventory ofhomes for sale is far tighter. In Phoenix, the inventory of homes forsale in July was well below the 10-year-average, says the CromfordReport. There, home prices in July were up almost 17% from a year ago,Case-Shiller says.