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Will rising home prices take a break?

By Polyana da Costa · Bankrate.com
Friday, September 20, 2013
Posted: 6 pm ET

Homes prices have been climbing modestly as the number of sales involving foreclosed homes shrinks, according to the latest report from home valuation company FNC.home-equity-generic-6-lg

FNC's Residential Price Index for the 100 largest metro areas reached a three-year high in July. It climbed 0.7 percent compared to the previous month and 3.9 percent from a year ago.

Some cities saw much bigger improvements, including Phoenix, where home prices have soared nearly 28 percent since last year. In Las Vegas, prices jumped nearly 20 percent.

The level of foreclosure sales nationwide also is normalizing to pre-crisis levels, FNC says. Foreclosure sales accounted for 12.2 percent of total home sales in July, according to the report. That's down from 17.3 percent a year ago.

How long will it last?

While this is great news for homeowners, don't get used to the trend just yet. Remember, this is a slow housing recovery that might get even slower if the economy doesn't pick up, especially if mortgage rates keep climbing, says Robert Dorsey, chief data and analytics officer at FNC.

"The good news is the prices are increasing," he says. "The bad news is they are still long way from where they were before the crash. It's going to take a long time to get there."

Dorsey says he expects the pace of home of sales and price increases to slow in coming months.

"I don't think we have really seen much impact yet in terms of prices, but if mortgage rates keep increasing, it's going to be reflected in fewer houses being purchased," he says.

A recent survey by Redfin shows that 1 in 5 active homebuyers slowed their pace in searching for a home because of rising mortgage rates. About 33 percent of respondents said they increased the pace of their home search, and 1 percent said they stopped searching because of higher rates.

What about you? Have rising mortgage rates changed your homebuying plans?

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