If you're looking to buy a home, welcome to 2003. Average home prices continued their trajectory by rising 8.1 percent in the 12 months ending in January, among the 20 cities measured in the Standard & Poor's/Case Shiller home price index. They are now at the levels they were in 2003.
All 20 of the nation's largest cities posted a year-over-year gain, with Atlanta, Detroit, Las Vegas, Los Angeles, Miami, Minneapolis, Phoenix and San Francisco reporting double-digit annual returns. Phoenix topped the list with a 23.2 percent gain. New York's rise of 0.7 percent was the smallest gain among the markets, but the first time that city has posted a positive return in 28 months.
The positive news is another sign the housing recovery is well under way. "This marks the highest increase since the housing bubble burst," said David Blitzer, chairman of the index, in a statement. Year-over-year gains haven't been this high since 2006, when prices reached their peak. Overall, the index is still down 28.4 percent from what it was in 2006.
Rising home prices have a compounding impact on the housing market, says John Walsh, president of Total Mortgage Services in Milford, Conn. Homeowners who were considering foreclosure are more likely to stay in their homes as their equity increases, he says. That means the inventory of distressed properties will continue to shrink, resulting in stabilization of home prices. Additionally, banks become more confident about lending when home prices are rising. "We'll probably see underwriting guidelines loosen up a little bit," he says.
Potential buyers are reporting a small inventory of homes for sale, Walsh says, which also helps drive up prices. "We're doing a lot of pre-approvals for clients who are saying there's not a lot out there for sale," he says, fueling pent-up demand for buyers who want to cash in on their equity and move up.
For those currently in the market to buy or refinance, the negative result of home prices rising is that mortgage rates will probably go up, and it could happen quickly, Walsh says. "I think the end is near for near-record low rates. If you're thinking of refinancing, my advice is to do it now."
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