Home prices in 20 U.S. cities appreciated at a faster pace in the year ended in January, indicating the residential real estate market continues to firm.
The S&P/Case-Shiller index of property values increased 4.6% from January 2014, the biggest gain since September, after rising 4.4% the prior month, a report from the group showed Tuesday in New York. That matched the median projection of 28 economists surveyed by Bloomberg. On a national scale, prices rose 4.5% from January 2014.
A dearth of supply will continue to drive up home prices heading into the busy spring selling season as demand is spurred by rising rents. Builders like KB Home expect to post strong revenue in the warmer months ahead, based on early signs of strength, particularly among first-time buyers.
"The housing market's in much better shape, getting better all the time," said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida, who correctly forecast the gain in home prices. "It still has a long way to go to get back to what we would consider a steady state."
Economist estimates in the Bloomberg survey ranged from gains of 4% to 5%. The S&P/Case-Shiller index is based on a three-month average, which means the January figure also was influenced by transactions in November and December.
Seasonally adjusted home prices in the 20-city index increased 0.9% in January from the prior month, matching December's advance. Unadjusted prices were little changed.
Fourteen cities in the index showed year-over-year gains in January that were larger than in the prior month, with Chicago experiencing the largest acceleration. San Francisco was among the six cities with smaller increases.
The year-over-year gauge, based on records dating back to 2001, provides a better indication of trends in prices than the monthly figures, the group has said.
"The combination of low interest rates and strong consumer confidence based on solid job growth, cheap oil and low inflation continue to support further increases in home prices," David Blitzer, chairman of the S&P index committee, said in a statement.
"Despite price gains, the housing market faces some difficulties," Blitzer also said. "Home prices are rising roughly twice as fast as wages, putting pressure on potential home buyers and heightening the risk that any uptick in interest rates could be a major setback."
There is evidence that the industry is already rebounding as and the likelihood of a near-term interest rate rise by the Federal Reserve increases.
More Americans than forecast signed contracts to purchase previously owned homes in February, braving the winter weather to take advantage of cheap borrowing costs. The index of pending sales increased 3.1% to 106.9, the highest since June 2013, after a 1.2% gain the prior month that was smaller than initially estimated, figures from the National Association of Realtors showed Monday in Washington.
In the same month, new-home sales unexpectedly surged to a seven-year high, the Commerce Department said March 24. Sales increased 11.6% to a 481,000 annualized pace, the most since June 2008, which exceeded all estimates in a Bloomberg survey.
Homebuilders like KB Home have been expecting demand to increase as the U.S. adds jobs, mortgage rates remain near record lows and pent-up demand is unleashed after years of underproduction.
"The early signs of spring selling season have been very encouraging," Jeffrey Mezger, the Los Angeles-based company's chief executive officer said on a March 20 earnings call. "Our increasing traffic is a strong indication that demand is on the rise."
KB Home's orders for the three months through February increased 24% in volume and 25% in value from the year-earlier period. First-time homebuyers accounted for 50% of sales, Mezger said. That represents "an incredible pent-up demand that seems to be starting to get unlocked."
More accessible credit and greater inventory would enable more of those first-time buyers to enjoy the low borrowing costs characteristic of the market. The average rate on a 30-year, fixed mortgage was 3.69% in the week ended March 25, according Freddie Mac. The record low was 3.31% in November 2012.
Meanwhile, tight supply is driving home prices up faster than incomes and making ownership prohibitive to many would-be buyers. Purchases of previously owned homes rose 1.2% to a 4.88 million annualized rate, figures from the National Association of Realtors showed March 23. The median price climbed to $202,600 from $188,400 in February 2014, the report showed. The 7.5% increase was the biggest in a year.
Other data this month showed how plunging temperatures and snowfall restrained builders from breaking ground on residential construction projects in February. Housing starts plummeted to an 897,000 annualized rate, down 17% from January and the fewest in a year, the Commerce Department reported March 17.
