Home Prices Rise at Slower Pace in September

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US Home Prices Rise In May To Highest Level In 7 Years
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By CHRISTOPHER S. RUGABER

WASHINGTON -- A measure of U.S. home prices rose only slightly in September from August, a sign that prices are leveling off after big gains earlier this year.

Real estate provider CoreLogic said Tuesday that home prices increased 0.2 percent in September from the previous month. That's sharply lower than the 0.9 percent month-over-month gain in August and the 1.8 percent increase in July.

Prices still rose 12 percent in September compared with a year ago.

Higher mortgage rates and prices slowed home sales in September. As a result, price gains have cooled off.

Mortgage rates are still very low. And the average rate on a 30-year fixed loan has fallen to 4.1 percent in the past month, down from a two-year high of nearly 4.6 percent over the summer.

"This deceleration is natural and should help keep market fundamentals in balance over the longer-term," said Anand Nallathambi, president and CEO of CoreLogic.

%VIRTUAL-article-sponsoredlinks%Many economists expect the housing market to keep improving, though with slower gains in home sales. Still, the spike in rates over the summer has weighed on the market. A measure of signed contracts to buy homes fell 5.6 percent in September to the lowest level in nine months.

There is generally a one- to two-month lag between a signed contract and a completed sale. The sharp drop in September suggests final sales will decline in the coming months.

The annual price gains are widespread, according to CoreLogic. Prices rose in all 50 states and in all 100 of the largest U.S. metro areas.

Prices jumped 25.3 percent in Nevada from a year earlier, the most in any state. California (22.5 percent), Arizona (14.6 percent), Georgia (14.4 percent) and Michigan (13.9 percent) reported the next highest gains.

Home prices are still about 17 percent below the peak reached in April 2006, according to CoreLogic.

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Home Prices Rise at Slower Pace in September

Yes, homebuilder stocks have bounced back. But there are plenty of favorable tailwinds that can whirl back around and become headwinds pretty soon.

Borrowing costs are still hovering near historic lows. In a financial disclosure filing last week it was revealed that Ben Bernanke -- yes, that Bernanke -- refinanced his home last year. If even the Fed chairman thinks that the time is right to lock in low rates, it's advice worth heeding.

Low interest rates are keeping home prices buoyant, obviously. If mortgage rates move higher there's less bang for every home-buying buck. What do you think will happen to home prices when interest rates move higher? You know the answer. Investors in homebuilders apparently do not.

One of the things helping inflate the domestic housing market is the emergence of international opportunists.

The National Association of Realtors estimates that overseas buyers spent $82.5 billion on U.S. properties during the 12 months ending in March -- accounting for nearly 9% of all home purchases. The percentage is even greater in some of the states hit hardest during the meltdown, with more than a quarter of all homes being sold in Florida going to international purchasers.

Whether we're talking about folks approaching the U.S. as a safe haven or investors sensing that real estate prices have fallen too hard, outsiders are storming into the market. Foreign sales spiked 24% over the prior 12 month-period.

The problem with this strategy is that these are also the same people who will exacerbate the problem by selling quickly if prices start to fall again.

Ahh, politics. If you've seen the Barack Obama ads arguing that Mitt Romney would raise taxes on the middle class by up to $2,000 -- shocking, given the Republican's candidate emphasis on cutting tax rates across the board -- it's time to brush up on the tax breaks that may dry up in exchange for lowering corporate and individual income tax rates.

The nonpartisan Tax Policy Center points to the likelihood of the elimination or at least partial elimination of common itemized return deductions including mortgage interest, health insurance, and charitable contributions if Romney wins the White House.

Keep in mind that the Romney camp has not gone public with the exact breaks that would be scaled back, but it's easy to see what would happen to new and existing home sales if the mortgages being taken out to finance them no longer had the same after-tax appeal.

Taking a look at the other side of the partisan minefield, what do you think will happen to home prices if tax rates go up on citizens earning more than $250,000 a year? The luxury home market would naturally take a hit as potential buyers have less money for their new digs. But what about the cheaper second or third vacation properties that they may not be able to buy?

Home prices across various price brackets would take a hit if take-home pay shrinks for well-heeled potential buyers. This is why the real estate bounce may come to an end in 2013 regardless of who is in the White House.

The popularity of asset-sharing services for big-ticket items is booming. Why buy a car or a vacation property when you can simply rent one when you need it? Even a private jet -- a luxury historically reserved for the very rich -- is now within reach of mere multimillionaires through corporate jet-sharing services.

That mindset is also permeating into actual home ownership. Owning a house is no longer the American dream.

Several reports indicate that owning is now cheaper than renting in most major cities given the historic low mortgage rates. Why aren't folks buying? Well, they would rather have the certainty of renting than the uncertainty of buying a home that may decline in value again.

With the images of foreclosures and underwater mortgages fresh in their minds, consumers won't be as speculative or naive this time around.

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