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Home prices rising fast, but gains could slow

10:20 AM, Oct 3, 2012   |    comments
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Julie Schmit, USA TODAY

U.S. home prices are coming off the bottom faster than many expected.

Market researcher CoreLogic says prices were up 4.6% in August from a year ago, the largest year-over-year gain in six years. The report parallels others showing recent strengthening in home prices, which are still down about 30% from their 2006 peak.

Much of the recent increase is traceable to tightening supplies of homes for sale. In August, existing single-family home sales were up 9% year over year, but the supply of listed homes for sale was down 18%, according to the National Association of Realtors.

"Inventories drive prices," says Christopher Thornberg, an economist with Beacon Economics.

As home prices rise, more people will eventually list homes for sale. And as they do, price gains may slow, says Zillow economist Stan Humphries.

August was the sixth consecutive month that home prices were up on a month over month basis, CoreLogic says. That is a reversal from last fall, when prices were still falling.

CoreLogic expects September home prices were up 5% year-over-year, too. But, it says they likely slipped 0.3% in September from August as the summer season ended.

Still, the housing market lately has shown a forward momentum that was not evident last year or even last spring.

Last year, some housing experts thought home prices would keep falling through 2012. There were fears that lenders would flood the market with foreclosed homes, which would drive down prices as a result of the mortgage settlement between large lenders and federal and state officials.

Neither scenario has played out. What's more, low mortgage interest rates -- which last week reached an all-time low average of 3.4% for a 30-year fixed-rate loan -- and improved consumer confidence are helping demand.

"As people perceive that prices have bottomed, they're coming back into the market," says Mark Goldman, real estate expert at San Diego State University.

Rising prices are helping homeowners build equity. In the first half of this year, 1.3 million homeowners moved from being underwater -- owing more on their mortgages than their homes were worth -- into positive equity status, CoreLogic says.

More will cross that bar if prices continue to go up. That enables more people to sell or refinance into lower cost loans.

Zillow predicts that home prices will see "modest" appreciation for two to four years, given still high unemployment and the huge number of people who're still underwater.

Despite recent gains, more than one in five homeowners with a mortgage still owe more on their loans than their houses are worth, CoreLogic data shows. Zillow's data shows that more than 30% of homeowners are still underwater.

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