Home prices up year on year in 88pc of US cities as economy recovers

Economic recovery, shortage of properties for sale and drop in foreclosures spark competition among buyers and keep values up in most cities

PUBLISHED : Wednesday, 13 November, 2013, 4:01am
UPDATED : Wednesday, 13 November, 2013, 4:01am

Prices for single-family homes climbed in 88 per cent of US cities in the third quarter as buyers competed for limited inventories that included fewer discounted foreclosures.

The median transaction price rose from a year earlier in 144 of 163 metropolitan areas measured, the National Association of Realtors said. A third of areas had double-digit increases.

Home prices are extending a recovery across the country, fuelled by a tight supply of listings and a smaller share of distressed sales, which drag down values. The US housing market had five months of inventory in the third quarter, down from 5.9 months a year earlier, data from the Realtors group show. Completed foreclosures in September had plunged 39 per cent from a year earlier, said CoreLogic.

"Most regions of the country are experiencing strong home- price appreciation off a low base," Neil Dutta, head of US economics at Renaissance Macro Research in New York, said. "Cities with the biggest price appreciation are in places that had bigger busts."

Price gains are at unsustainable levels, with cities such as San Francisco and San Jose, California, approaching records, Fitch Ratings said in a report. Much of coastal California is more than 20 per cent overvalued, it said.

The nationwide median price for an existing single-family home rose 12.5 per cent in the third quarter from a year earlier to US$207,300, the Realtors group said.

The best-performing areas were Sacramento, California, and Atlanta, where prices jumped 41.8 per cent. They were followed by Las Vegas and Punta Gorda, Florida, which had a 31.9 per cent gain. Other cities with large increases were Los Angeles, with 26.2 per cent, and Phoenix, with 25 per cent.

The areas with the biggest declines were all in Illinois, led by Peoria, where prices fell 13.9 per cent from a year earlier. Following were Kankakee, with a 9.9 per cent drop, and Rockford, with an 8.4 per cent decrease.

Rising home prices and borrowing costs are causing some buyers to hold back. The average rate for 30-year fixed loans was 4.1 per cent last week, up from a near-record low of 3.35 per cent in early May, according to Freddie Mac.

Contracts to buy existing homes dropped the most in more than three years in September, the Realtors association said.

"Rising prices and higher interest rates have taken a bite out of housing affordability," Lawrence Yun, the group's chief economist, said. "However, we have the ongoing situation of more buyers than sellers, so lower sales will help to take the pressure off home-price growth and allow them to rise slowly at a single-digit growth rate in 2014."

San Jose was the most expensive market in the third quarter, with a median home price of US$805,000, the Realtors said. Following were San Francisco, at US$705,000, and Honolulu, at US$679,800.