Home Prices Rise, Mortgage Applications Increase

More people are buying homes in the United States, accelerating price increases throughout the country.

Home prices rose 6.3% year-over-year in May 2015 according to the CoreLogic Home Price Index, marking 39 months of consistent year-over-year increases in house prices throughout the country. Thirty-three states saw home prices at record highs, although the index overall remains below the 2006 peak.

More people are buying homes in the United States, accelerating price increases throughout the country.

Home prices rose 6.3% year-over-year in May 2015 according to the CoreLogic Home Price Index, marking 39 months of consistent year-over-year increases in house prices throughout the country. Thirty-three states saw home prices at record highs, although the index overall remains below the 2006 peak.

Prices also rose 1.7% month-over-month from April, bringing total house prices across the country to 8.4% below the peak in 2006. CoreLogic predicts home prices will continue to rise at a 0.9% month-over-month rate in June, and will climb 5.1% year-over-year in May 2016.

CoreLogic Chief Economist Frank Nothaft reported that May saw a slight acceleration in price growth throughout the country. “The rate of home appreciation ticked up in May with gains being fairly widely distributed across the country. Importantly, higher home prices over the past couple of years have spurred increases in new single-family construction,” he noted, adding that new home sales rose 23% year-over-year. “As rising values build equity for homeowners, we expect to see more existing homes offered for sale in the coming year,” he said.

Some regions are seeing much higher price growth, such as year-over-year price increases over 10% in cities such as San Francisco. The Bay Area has seen above-market price growth in property consistently over the past year, and many analysts believe the trend will sustain itself for a while as more buyers join the market and inventory remains constrained.

Rate Fears

Concerns about higher mortgage rates in the near term when the Federal Reserve raises its rate target have brought some hesitant buyers into the market, and Nothaft believes home-purchasing is still being driven by historically low interest rates on loans. “Mortgage rates on 30-year fixed-rate remained below 4% through May, helping to fuel home-purchasing activity,” he said.

In a separate report, the Mortgage Bankers Association noted that mortgage applications have risen for the week ending July 3, with the seasonally adjusted Purchase Index rising 7% on a week-over-week basis. At the same time, refinancing activity also increased, as the MBA’s Refinance Index rose 3% from the prior week.

The MBA also noted that interest rates have fallen slightly, down to 4.23% from 4.26% on average.

While many economists believe a Federal Reserve rate hike is likely to come later in the year, some economists and many investors have bet on a later rate hike coming in 2016. Analysts have warned that a sudden rate hike could slow the labor market in the U.S., as it caused borrowing costs to increase and crimp business investment. If rates do not rise later in the year, there is a possibility that mortgage rates could fall further and home buying activity could increase even further.