US house prices rose at a less feverish pace in July signalling the impact of higher mortgage interest rates on demand.
U.S. home prices up, but slip in confidence could be a concern
U.S. home prices slowed their rate of gains in July and a dip in consumer confidence this month underscored the potential for higher borrowing costs and a sluggish economy to dent a housing market recovery.
The S&P/Case Shiller composite index of 20 metropolitan areas rose 0.6 percent on a seasonally adjusted basis, a little slower than the 0.8 percent gain economists in a Reuters poll had expected and the 0.9 percent increase logged in June.
In addition, data from the U.S. Federal Housing Finance Agency showed U.S. home prices rose 1 percent in July from June.
Since May, homebuyers have been hit with rising interest rates on speculation the U.S. Federal Reserve could soon pull back on crisis-era stimulus measures, slowing house price gains.
Price gains could keep slowing as rates keep moving higher, analysts said, despite a solid rise in the last year.
“Further rate increases are going to have an effect. That’s what’s on people’s minds now, it’s those rate increases,” said Yale University economics professor Robert Shiller, who helped create the gauge, in an interview with Reuters Insider.
“It may turn the market down,” he added.
U.S. home prices have jumped since last year. Year-over-year, home prices in all 20 cities of the S&P/Case-Shiller data have gained, with Las Vegas surging 27.5 percent.
Lennar Corp, the No. 3 U.S. homebuilder, reported a better-than-expected quarterly profit on Tuesday as it sold more homes at higher prices.
But analysts noted that home prices remained off their pre-crisis era peaks.
“Home prices still have a long way to go before home prices are back to levels that predated the collapse of the housing market,” Thomas Simons, a money market economist at Jefferies, wrote in a note to clients.
Economists are worried that a jump in interest rates will put off homebuyers. The yield on the benchmark 10-year Treasury has surged more than 100 basis points since May, when Federal Reserve policymakers began hinting at an exit from crisis-era measures to prop up the world’s biggest economy.
But last week the U.S. central bank surprised markets by keeping its $85 billion of buying in Treasuries and mortgage-backed securities in place, pointing to worries about the economy, including employment.
Growth is seen easing in the third quarter and the Fed cut its forecasts for growth this year and next.
The still-sluggish economy could weigh on consumers as well.
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