House Prices Continue to Rise


Nationally, house prices continued to rise in the second quarter of 2013. According to the most recent release by the Federal Housing Finance Agency, U.S. house prices rose by 2.1% on a quarter-over-quarter seasonally adjusted basis. This is the eighth consecutive quarterly increase for the House Price Index – Purchase Only. Over the past two years house prices have climbed by 8.1%.

On a month-over-month basis, the June increase in house prices were geographically widespread, increasing in every division of the country. As Chart 1 illustrates, the largest gains took place in the Pacific and Mountain divisions, regions of the country containing states, like Nevada and California, which experienced the largest price declines.


Chart 2 updates analysis discussed in an earlier post comparing national house prices, which began a sustained recovery in 2011, with mortgage applications for purchase, a measure of mortgage demand. This relationship is of particular interest because of the recent spike in mortgage rates. Higher mortgage rates could dampen housing demand and restrain house price growth. According to data released by the Mortgage Bankers Association, mortgage applications for home purchase increased by 0.7% over the month of June, but declined by 6.6% over the month of July. Since reaching its most recent peak in April, mortgage applications for purchase have fallen by 7.8%, possibly reflecting the 92 basis point increase in mortgage rates that took place over this same period.

As a result of the decline in mortgage applications, the 6-month moving average, which has been rising in tandem with house prices, dipped slightly in July. The 6-month moving average smoothes volatility in the month-to-month data. Holding constant all other influences, the recent decline in mortgage applications that likely stemmed from rising interest rates suggests that house price growth could decelerate in the coming months. However, other dynamics, such as pent-up housing demand and tight housing supply are expected to support house price growth. In addition, the rise of all-cash sales has diminished the role of mortgage applications for purchase as an indicator of housing demand. As a result, rising house prices and the housing recovery will continue. Nevertheless, mortgage applications for purchase, a key method of purchasing a home, will continue to be watched for clues about the direction of house prices.

For full histories of the FHFA US and 9 Census divisions, click here.


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