U.S. home prices in June posted their first year-over-year increase in nearly two years as more buyers chased fewer homes for sale during the first half of 2012, according to an index released Tuesday.
The S&P/Case-Shiller index of 20 metropolitan areas showed home prices rose 0.5% from a year ago in June, ending a streak of 20 straight monthly declines. Home prices are still down by nearly 31% from their 2006 peak, returning to mid-2003 levels.
Since prices began their steep decline in 2006, they had previously posted year-over-year increases in just eight months during 2010, when home-buyer tax credits fueled a burst of sales activity.
Today, prices are rising amid sharp declines in the number of homes for sale as banks are taking back fewer foreclosed homes and traditional sellers have held out for better prices. Meanwhile, record-low mortgage-interest rates have dramatically increased the purchasing power of buyers. Also, investors have scooped up bargain-priced foreclosures that can be converted into rental properties.
Prices rose by 2.3% in June from May. After adjusting for seasonal factors—home-buying is typically the most brisk during the late spring—prices were up by 0.9% from May, according to the 20-city index.
Case-Shiller's index measuring national prices recorded year-over-year price gains of 1.2% from one year ago and increased by 2.2% from the first quarter on a seasonally adjusted basis. The quarterly gain was the largest since late 2005.
"We seem to be witnessing exactly what we needed for a sustained recovery; monthly increases coupled with improving annual rates of change," said David Blitzer, chairman of S&P's index committee. "The market may have finally turned around."
The report showed that home-price gains were increasingly broad based, with 13 of 20 cities posting year-over-year increases. Prices in Phoenix were up by 13.9% from one year ago, continuing a sharp turnaround for the hard-hit market. Other large gains were reported in Minneapolis, where prices were up by 5.7%, in Miami (4.4%), and Denver (4.0%).
Prices were below last year's June level in six markets, led by Atlanta, which was down by 12.1%, New York (-2.1%), and Las Vegas (-1.8%). Those rates of decline were smaller than they have been in recent months.
The housing market still faces stiff headwinds, including tight lending standards, an economy that isn't producing large job or wage gains, and high levels of homeowners who are underwater, or owe more than their homes are worth.
But rising home prices will help shrink the glut of underwater borrowers and could help buoy consumer confidence. It is also minimizing the feared damage from the "shadow inventory" of mortgages that are in some stage of delinquency or foreclosure.