Home Prices Rise In April At Record Rate

Home prices rose in April at a record rate, new data released Tuesday showed. The Case-Shiller Home Price Index and the FHFA Home Price Index both showed continued improvements in prices in April.

Price Gains

In April, the Case-Shiller Home Price Index of the 20 largest cities revealed that prices rose 12.05 percent from a year ago, far outpacing the expected rise of 10.6 percent. Further, March's reading was raised slightly to show 10.87 percent annual growth in prices vs. the prior estimate of 10.85 percent.

Prices rose a solid 1.72 percent in April from March, also outpacing estimates and at the highest monthly rate on record. Economists had forecast that the monthly gain in prices would only be 1.2 percent while March's monthly gain was revised much higher to 1.91 percent from 1.12 percent. All in all, the Case-Shiller report was very strong in April, however the data is rather lagging and markets are more concerned now about the recent rise in interest rates that began in mid-May.

“The 10- and 20-City Composites posted their highest monthly gains in the history of S&P/Case- Shiller Home Price Indices,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “Thirteen cities posted monthly increases of over two percentage points, with San Francisco leading at 4.9%.

However, taking some of the fuel out of the fire was the FHFA Home Price Index, which only rose 0.7 percent in April from March vs. the expected rise of 1.1 percent. However, March's monthly figure was revised higher to 1.5 percent gains from 1.3 percent initially seen.

Rate Fears

The data is from April when the economy was still showing signs of improvement and financial markets were still rising. However, recent moves in the interest rate market have seen mortgage rates rise nearly 100 basis points since May 22, raising fears that a massive slowdown is due in the housing market. However, the economists at Dow Jones who compile the index are not so concerned about recent rate rises.

“Last week's comments from the Fed and the resulting sharp increase in Treasury yields sparked fears that rising mortgage rates will damage the housing rebound. Home buyers have survived rising mortgage rates in the past, often by shifting from fixed rate to adjustable rate loans. 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.”

Detroit Lags

Notably in the Case-Shiller report, only one of the twenty cities failed to show price gains. Prices in Detroit were flat in April. However, prices in "the D" are up nearly 20 percent from a year ago.

Markets React

S&P 500 futures traded at session highs following the record-setting report. S&P 500 futures rose to an intraday high of 1,582.00 as housing stocks climbed. The SPDR S&P Homebuilders ETF XHB rose 2.04 percent pre-market with Lennar LEN gaining 5.37 percent after reporting better than expected earnings.

10-year bond yields in the U.S. eased back to 2.53 percent, down 1 basis point, after rising to 2.56 percent. Gold futures eased back off of earlier gains to $1,281.40 per ounce, a gain of 0.34 percent.