Rising Prices a Positive for the Sector

By Tim McLaughlin, Seniro Vice President, Weichert Financial

Home prices rose by their largest percentage in at least seven years during the second quarter, propelled by low inventories of properties for sale and high demand for bargain priced foreclosures, according to two reports Tuesday.

Prices rose by 2.5% in June from a year ago, and by 6% from the previous quarter, said CoreLogic Inc., a Santa Ana, Calif., data firm. The quarterly jump was the largest since 2005.

Separately, Freddie Mac, which uses a different methodology, said home prices during the second quarter jumped by 4.8% from the previous quarter. That was the largest jump since 2004.

The main force behind the home price gains appears to be a shortage of homes for sale. The number of properties on the market is down sharply from a year ago. Meanwhile, demand is up, as mortgage rates have dropped to their lowest levels in at least 60 years.

Prices are rising because “there’s not enough supply, given higher levels of demand,” said Ivy Zelman, chief executive of Zelman & Associates, a research firm. Last week, Ms. Zelman revised her 2012 price forecast to a 5% gain. At the beginning of the year, she predicted a 1% decline. “With every passing month, distressed homes are being absorbed at better and better prices,” she wrote recently.