Home Prices Continue to Surge Higher, But Will It Last?

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With the help of historically low mortgage rates and inventory levels, the real estate market continues to post impressive price gains.

In July, home prices across the nation increased on a year-over-year basis for the 17th consecutive month. According to CoreLogic, a leading property information and analytics provider, home prices jumped 12.4 percent in July from a year earlier. Compared to June, CoreLogic’s home price index gained 1.8 percent in July. Excluding distressed sales, home prices increased by 11.4 percent from last year, and they are expected to post another double-digit gain in August.

Home prices are still nearly 18 percent below their bubble peak in April 2006, but every state except for Delaware logged an annual increase in July. The nation’s second-smallest state experienced a decline of 1.3 percent in home prices. The five states with the highest home price appreciation were: Nevada (27 percent), California (23.2 percent), Arizona (17 percent), Wyoming (16.4 percent), and Oregon (15 percent).

Despite the impressive rebound in home prices, the recent rise in mortgage rates is expected to hinder the rapid pace. Mark Fleming, CoreLogic’s chief economist, said, “Looking ahead to the second half of the year, price growth is expected to slow as seasonal demand wanes and higher mortgage rates have a marginal impact on home purchase demand.”

Between the beginning of May and the end of June, the average interest rate for a 30-year fixed-rate mortgage surged from 3.59 percent to 4.68 percent, according to the Mortgage Bankers Association. The most recent report from the organization said the average rate on a 30-year fixed-rate mortgage was 4.8 percent — its highest reading since April 2011.

In morning trading, shares of Home Depot (NYSE:HD) jumped 1 percent, while Lowe’s (NYSE:LOW) edged slightly lower. Home builders PulteGroup (NYSE:PHM) and KB Home (NYSE:KBH) both increased about 1.6 percent.

Here’s how the major U.S. indexes traded on Tuesday:

Dow Jones Industrial Average Index Chart - Yahoo! Finance

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