By Peter Schroeder - 12/31/13 09:56 AM EST
Home prices have posted their strongest year-over-year gains since 2006, as the housing market continues its comeback from the subprime meltdown.
Through October 2013, home prices in 20 cities were up 13.6 percent compared to a year ago, according to the latest report of the S&P/Case-Shiller Home Price Indices.
“Both Composites’ annual returns have been in double-digit territory since March 2013 and increasing; now up 13.6% in the year ending in October,” said David Blitzer, chairman of the index committee at S&P Dow Jones Indices. “However, monthly numbers show we are living on borrowed time and the boom is fading.”
For example, San Francisco, one of the nation’s priciest housing markets, actually saw prices dip for the first time in 19 months in October. Eight other cities also posed monthly declines, compared to just one city in September.
Nonetheless, the overall trend for the housing market remains positive, as all 20 cities tracked have posted solid gains in the last year, ranging from 4.9 percent to 27.1 percent. Thirteen cities have seen their yearly gains increase in pace.
With the recent surge in home prices underway, a central question for the future of the housing market is how a change in monetary policy could impact the appeal of buying a home. Much of the housing comeback has been driven by the extremely accommodative monetary policy from the Federal Reserve. The central bank’s unprecedented efforts to drive rates as low as possible have led to historically low mortgage rates, which in turn has made buying a home much more appealing to prospective purchasers.
But earlier this month, the Fed announced it was beginning to pull back on that stimulus. The Fed said it plans to slowly wind down that support and is prepared to adjust its plans according to data. But if the slowdown leads to a spike in mortgage interest rates, it could put the brakes on the housing recovery.