More mixed news in the housing market. On the one hand the increase in home prices is slowing; on the other hand home sales -- both existing and new -- continue to rise at a brisk pace.
The S&P/Case-Shiller home price index rose 10.8% in April from a year ago -- the slowest rise in more than a year. Meanwhile new home sales for May rose 16.9% from a year ago and 18.6% from April -- to their highest level in six years, far more than expected. And existing homes were up 4.9% in May though 5% below the year-ago level.
"Home prices will continue to increase, but it's slowing down," says Yale economics professor Robert Shiller, co-creator of the home price index that bears his name. "Maybe it's not portending anything really dramatic happening in the housing market. Maybe it will go up well under 10%, maybe 5% in the coming year."
Stan Humphries, the chief economist at Zillow, an online real estate marketplace, writes that the mixed data for housing, while somewhat confusing, reflects a new reality in the market. "The market is moving from one defined by distortions, including high negative equity and constricted inventory, to one defined by fundamentals like household formation rates, jobs and income growth," writes Humphries.
And none of those factors is rising substantially enough to move home prices or home sales sharply higher. So what happens when the Fed starts raising rates, which could occur within the year?
"Rates are very low by historical standards so they will rise," says Shiller. "But that kind of thing can go on for years." He expects a gradual rise in interest rates but not back to the highs of 20 years ago because he thinks inflation is under control. In the past week, the 30-year fixed mortgage rate fell to 4.17% from 4.20% the week before, according to Freddie Mac.
The market now is not like it was in 2012 when rates sank to their lowest in history -- 3.35% for a 30-year fixed loan in November 2012, says Shiller. "That spurred the housing market but that momentum was lost when rates went up a little bit."
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