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US Home Prices See Biggest Gain in 7 Years

US Home Prices See Biggest Gain in 7 Years
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A new report confirms U.S. home prices are on the rise. Of 20 major cities in the Standard & Poor’s/Case Schiller home price index - 12 posted double digit gains in April, compared to last year. Industry experts say prices will continue to rise due to smaller inventories but some say tight lending standards and rising interest rates could put a damper on the housing recovery.

U.S. home prices are up more than 12 percent since last year.

That bodes well for the world’s largest economy and could help offset the drag from higher taxes and government spending cuts.
Lawrence Yun is the chief economist for the National Association of Realtors.

“When home values rise, this is good news for the economy because for many homeowners, they feel wealthier, they feel more comfortable going out and spending money," said Yun.

Home prices are rising because there are fewer homes to buy. But despite historically low interest rates, Yun says construction of new homes has not kept pace.

“Construction loan availability is very difficult at the moment so the homebuilders who are in the market are relying not on construction loans but are going to Wall Street and issuing bonds, issuing stocks, so these are big homebuilders, publicly listed companies who can tap Wall Street funds - who are able to build. But many of the smaller builders are shut out of the market and they are unable to enter," he said.

A sustainable housing market is important for global economic stability because severe problems with the U.S. market played a key role in the financial crisis and the global recession that followed.

Ken Simonson at the National Association for Business Economics says buyers are more wary now.

“I think there’s been quite a change in attitude among potential first-time homebuyers. They saw what happened a decade ago to people who bought, confident they could sell at any time and instead they wound up being stuck in their home or being kicked out of their home and that really made people more cautious about buying a home," said Simonson.

While some economists say tight lending standards and rising interest rates could constrain recent price gains, home builders are more optimistic.

The National Association of Home Builders’ confidence index is at a seven-year high. The group says that means more home construction projects - and more jobs.