Home Prices Jump the Most in 7 Years

Dwindling supply plus growing demand equal spiking prices.

(Michael Conroy/AP)

Prices may see some downward pressure in coming months due to rising mortgage rates.

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The housing recovery may have hit its strongest point yet. New data Tuesday show home prices in May were up 12.2 percent from a year ago, the biggest jump since February 2006.

The most recent data from real estate data firm CoreLogic show not only that price growth has accelerated but that the housing recovery has taken hold across much of the U.S. Home prices grew in 48 states and the District of Columbia in May, with declines only seen in Delaware, where prices fell by 0.6 percent year over year, and Alabama, where prices fell by 0.1 percent.

Leading the upward swing in home prices are Nevada, which posted price growth of 26 percent; California, with 20.2 percent; and Arizona, at 16.9 percent growth. Those three states were among the hardest hit by the housing crisis.

[READ: U.S. Home Prices Rise in April by Most in 7 years]

"The biggest reason why prices have been rising so sharply is that they're rebounding from big price declines after the bubble burst," says Jed Kolko, chief economist at real estate site Trulia. "The markets that have seen the biggest price increases tend to be those that saw the biggest declines a few years ago."

According to CoreLogic's data, home prices have been growing since March 2012, which one company analyst says is largely due to a dwindling supply of houses.

"As we approach the half-way point of 2013, home prices continue to respond positively to the reductions in home inventory thus far," said Mark Fleming, chief economist at CoreLogic, in a Tuesday statement.

That decline in inventory is a far cry from the post-bubble period, when scores of homes in hard-hit areas sat empty.

"We've swung from lots of vacancies to very tight inventory," Kolko says.

The supply of homes has dwindled for several reasons, Kolko says. One is that the population has grown while construction has slowed, meaning more growth in demand than supply. In addition, some homes are off the market because they are going through foreclosure or are bank-owned. In addition, he says, inventory further tightened as a result of rising prices.

"No one wants to sell at the bottom, so as soon as prices turned around, we saw inventory tighten even more," Kolko says.

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While prices have been on a healthy upswing, they remain far from where they were before the crash. Prices are 20.4 percent below their April 2006 peak, but that may be a poor standard by which to measure the recovery, he says.

"We hopefully won't see prices climb that high again because those were unsustainable price levels that led to the crash," Kolko says.

Prices may see some downward pressure in coming months due to rising mortgage rates. Lender Freddie Mac recently reported that the average 30-year fixed mortgage rate hit nearly 4.5 percent in its June 27 Primary Mortgage Market Survey – up more than half a percentage point from just the week before, when it was 3.93 percent, and up 0.8 percentage points from one year prior.

That's the largest one-week jump in 26 years, and it may mean buyers will buy less expensive homes than they would have when rates were at historic lows.

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