A dwindling supply of lower-priced homes and foreclosures continued to fuel the upward trend in home prices, an industry report showed Monday, with property values posting the strongest year-over-year increase in seven years.
Home prices rose in nearly 90 percent of the nation's largest metropolitan areas in the fourth quarter of 2012 according to the National Association of Realtors. The national median existing single-family home price rose 10 percent to $178,900, the strongest year-over-year price increase since the fourth quarter of 2005 when the median price jumped 13.6 percent.
Economists credited an improving job market and rock-bottom low interest rates for the home price increases as heightened demand put more pressure on a seemingly ever-tightening supply of homes.
"Home sales are being fueled by a pent-up demand and job creation, along with still favorable affordability conditions and rents rising at faster rates," NAR Chief Economist Lawrence Yun said in a statement. "Our population has been growing faster than overall housing stock, so supply and demand dynamics are very much at play."
While "favorable affordability conditions" still exist according to NAR, a shrinking supply of lower priced homes and foreclosures continued to account for some of the upward price pressure. Distressed homes—foreclosures and short sales—generally sell at deep discounts and depress overall home prices. Those types of sales only accounted for 23 percent of fourth quarter sales, down from 30 percent a year ago.
The best-performing metro area was Phoenix, where property values increased 34 percent from a year earlier. Close behind were Detroit and San Francisco, where prices rose 31 percent and 28 percent respectively. On the flipside, Kingston, N.Y., saw the biggest price declines, with the median selling price falling almost 8 percent. Kankakee, Ill., and Erie, Penn., followed posting 7 percent and 6.1 percent drops respectively.