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Home prices, mortgage rates soar

By Polyana da Costa · Bankrate.com
Tuesday, June 25, 2013
Posted: 3 pm ET

Home prices keep climbing, according to two home price indexes released today -- and so do mortgage rates.

Case-Shiller: Prices up more than 12 percent in a year

Home prices for the 20 cities included in the Standard & Poor's/Case-Shiller home price index increased 2.5 percent in April, compared to the previous month. Data through April 2013 show prices are up 12.1 percent from last year.

That's the largest year-over-year gain in seven years, says David M. Blitzer, chairman of the Index Committee at S&P Dow Jones Indices.

Prices in all 20 cities in the index were higher than a year ago. The biggest annual and monthly price gains were in San Francisco, where home prices jumped 23.9 percent from a year ago and 4.9 percent in April. Atlanta, Las Vegas and Phoenix also saw prices jump by more than 20 percent since last year, according to the index.

FHFA House Price index: Up 7.4 percent in a year

The Federal Housing Finance Agency index shows a more modest but still significant gain for home prices in April. According to the index -- which uses home sales price information from mortgage sold or guaranteed by Fannie Mae and Freddie Mac -- prices rose 0.7 percent on a seasonally adjusted basis from March, when homes prices increased 1.5 percent.

Prices jumped 7.4 percent in the 12 months ending in April, the index shows. The biggest gains were in the Pacific Census Division, which includes Hawaii, Alaska, Washington, Oregon and California.

Will rising rates damage the housing recovery?

Although the two indexes use different methods, the housing market recovery seems to be on the right track, no matter how you look at it.

At least, that was the case until last week, when Federal Reserve Chairman Ben Bernanke sent the markets on a wild ride during a news conference that followed the Fed's monetary policy meeting.

Mortgage rates have spiked since Bernanke told investors that the Fed will slow the pace of bond purchases this year and possibly end it mid-next year, as long as the economy continues to recover.

Will rising rates push some buyers out of the market and derail the housing recovery? Maybe that's what Bernanke is trying to figure out. Soon, he will have an answer.

Like the Fed, Blitzer seems optimistic and doesn't think higher rates will hurt the market.

"Homebuyers have survived rising mortgage rates in the past, often by shifting from fixed-rate to adjustable-rate loans," he says in a statement. "In the housing boom, bust and recovery banks' credit quality standards were more important than the level of mortgage rates. The most recent Fed Senior Loan Officer Opinion Survey shows that some banks are easing credit restrictions. Given this, the recovery should continue."

Easier credit, higher home prices, rising mortgage rates, bidding wars. Does that remind you of anything?

I would love to hear what homebuyers out there think about this. Would higher mortgage rates keep you from buying a home or make you look for a less expensive home?

Follow me on Twitter @Polyanad.

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12 Comments
Eurodude
August 02, 2013 at 12:11 pm

Enjoy your next housing bubble, ameroburgers.

OcalaDan
June 27, 2013 at 9:00 pm

Rates have been crazy low for too long. The FED can no longer keep rates under control. Rates are not coming down any time soon no matter how much money the FED prints. I feel bad for those of you that attempted to build houses in this environment but, please don't do ARMs, get out first. Buy an existing home and modify it so you can lock in your rate. Imagine how you would feel if you owed 16 Trillion dollars in ARMs like the US government. They would and have done anything to keep rates low but, it looks like the credit card does have a limit after all.

Gotcha
June 27, 2013 at 4:25 pm

I think that all this is a master-planned act by some people who wants to get rich quickly (like the Lenders and Fed). They knew all along that people are in the buying mood frenzy and settlement/closing takes awhile, even months before they complete. We all took the bait, deposited the earnest money and of course, the rates do increase when it's time most people will close. Gotcha!

Oracio
June 27, 2013 at 12:50 pm

I started my home construction in May, we are set to close in September. At the time I qualified for a 3.25% now we are close to 4.5%, I may not be able to afford my house now :( , I am praying they go back down asap!

Neil
June 26, 2013 at 3:48 pm

I am in the exact same situation as Lisa above. Signed new construction in January, to be completed in August and rates are soaring just as I'm getting ready to lock-in. It's very frustrating to sit there and see rates rising knowing you are just a few weeks away but nothing you can do!

Lisa
June 26, 2013 at 2:03 pm

I signed a contract to build a home in January when rates were 3.38%. Home is to be completed at the end of August so still waiting for the 60 day lock in period. As of Monday my monthly payment has increased by $240. I believe this will definitely affect the new home construction that is just beginning to show signs of improving. Who wants to commit to a loan closing months away with interest rates so uncertain? I expected a little increase but over 1% NEVER!!!

Mark Paul
June 26, 2013 at 1:16 pm

How can people who are in charge of such things be so completely out of touch with reality? I am set to close on a house in 14 days. When I made the offer to purchase rates were at 3.6% with a monthly payment of $746, this was affordable to me. If I locked my rates today my monthly payment would be over $850, no longer affordable. If rates to not return back 4% within a week I will have to back out of this purchase. Myself and countless other people. The stock market is all over the place. The last thing an economic recovery needs, and a weak one at that, is this kind of instability. Last time I checked inflation is still out of control, we haven't recovered from anything.

Blan
June 26, 2013 at 11:35 am

The way interest rates are rising may stop a good amount of people from purchasing a home. My rate right now is locked in at a 4 and if the underwriters can't get their act together and order the right paperwork for the fourth time and my rate lock expires, I'm giving the home up.

Kaif
June 26, 2013 at 7:36 am

Definitely this will hurt the market, I was about to close on a house two weeks ago when rates were 3.8% but by the time papers came in the rates were up to 4.6% which upped my EMI by $200 causing to back-off from buying the house. Now i don't think i can afford a house with this interest rate.

Mohammad Azad
June 25, 2013 at 8:29 pm

I think the way interest rate is rising,it makes me feel volatile market.It is not going to be stable. It will hurt echonomy since still unemployment is high, It is hard to get reliable job,most of the jobs in the market are contract for short period of time.I believe interest should be lower for certain period of time.