U.S. Home Prices Continue to Pick Up Speed

Property values continue to soar; is another housing bubble forming?

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A blue sky hangs over an unsold existing home on South Washington Street in central Denver on Monday, Aug. 21, 2006. Sales of previously owned homes plunged in July to the lowest level in 2 1/2 years and the inventory of unsold homes climbed to a new record high, fresh signs that the housing market has lost steam.

Home prices in the nation's 20 largest metropolitan areas surged 9.3 percent over the last 12 months ending in February, the most substantial year-over-year growth rate since May 2006, near the height of the housing bubble.

[READ: A Soup-to-Nuts Guide for Spring Homebuyers]

The 9.3 percent increase reported by the Standard & Poor's/Case-Shiller index Tuesday is up from 8.1 percent annual growth reported in January, providing more evidence that the pace of the recovery is accelerating after home prices hit bottom a year ago.

While prices dipped slightly in eight of the 20 largest metro areas tracked by the index, all posted year-over-year increases.

"Despite some recent mixed economic reports for March, housing continues to be one of the brighter spots in the economy," David M. Blitzer, chairman of the index committee at S&P Dow Jones Indices, said in a statement.

Experts credit much of the rapid growth in prices to tight inventory conditions plaguing many markets across the country. Rising home prices in recent months have made would-be sellers more hesitant to put their homes on the market as they wait for even stronger price appreciation, and millions of Americans are still upside down on their mortgages, preventing many from putting a for-sale sign in the front yard.

[PHOTOS: Home Construction on the Rise]

Meanwhile, housing demand has only continued to heat up as prospective buyers look to capitalize on the closing affordability window while mortgage rates hover near historic lows, a dynamic that has created a distinct sellers' market in many parts of the country.

The inventory shortages driving up home prices are not likely to go away anytime soon, according to experts. Even though rising home prices will encourage more homeowners to sell, more homebuilding is necessary to ease the supply crunch. While housing starts have picked up in recent months – construction of new units rose to an annual rate of more than 1 million in March, according to the Commerce Department– it takes about seven months to build a new home, meaning that construction's impact on housing supply will take time to trickle through the system.

There's also another issue brewing beneath the surface of what appears to be a rosy outlook for housing. Cities such as Phoenix and Las Vegas posted increases of 23 percent and almost 18 percent, respectively, prompting some experts to fear that bubble-like conditions are reappearing in some markets, especially among those where double-digit home price gains aren't supported by solid economic fundamentals such as job and wage growth.

"With the number of multiple offer transactions they are seeing, Redfin agents across the country are often asked whether we are in another bubble, and if it's bound to burst," says Scott Nagel, chief of real estate operations at Redfin, a national real estate brokerage. "The catastrophic bubble that popped five years ago was plagued with faulty loans. In contrast, today's rapidly rising home prices are largely driven by the abundance of all-cash offers and a lack of inventory."

[READ: Spring Housing Market Full of Eager Buyers, Patient Sellers]

Stan Humphries, chief economist at online real estate resource Zillow, agrees, pointing out that more recent data shows signs that home-value appreciation is moderating.

"Regardless what data you look at, home values are clearly rising at an unsustainable pace," he wrote in an email. "The appreciation rates we're currently seeing in the Case-Shiller composite are not broadly reflective of what's happening in the national housing market right now.

"It is overly skewed to quickly rebounding markets – particularly in the Southwest and on the West Coast – and is being boosted by a shift in transactions away from foreclosure re-sales."

Still, rising home prices are setting the stage for a pickup in economic growth, according to others who point to the benefits of rising household wealth. After tanking during the housing bust, household real estate wealth increased by $1.4 trillion in 2012, according to the Federal Reserve.

That not only lifted almost 2 million Americans above the underwater mark on their mortgages, but higher home prices make people feel more wealthy so they're likely spend more, said Patrick Newport, an economist at financial analytics firm IHS Global Insight, in a report Tuesday.

Rising home prices also juice the homebuilding sector because it makes it more profitable to build homes again, a plus for industries ranging from homebuilding and construction to furniture and appliance makers.

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