Steady job growth, low mortgage rates and tight inventories helped fuel rising U.S. home prices in October.
The Associated Press reports the Standard & Poor’s/Case-Shiller 20-city home price index rose 5.5% in the 12 months ending in October, up from a 5.4% pace in September, according to a report released today.
Home values have climbed at a roughly 5% pace during much of 2015, as strong hiring has bolstered a real estate market still recovering from a housing bust that triggered a recession eight years ago. Home sales have increased this year as the 5% unemployment rate has strengthened confidence in the economy.
“The U.S. housing market as a whole made great progress in 2015, as the big and occasionally volatile bounce off the bottom we experienced from 2012 through 2014 gave way to a more stable and sustainable environment,” Svenja Gudell, chief economist at the real estate firm Zillow, told The Associated Press.
Rising demand, however, hasn’t been met with an increase in sales listings, causing prices to rise much faster than inflation or wages this year. This could limit the number of first-time buyers coming into the market next year. Still, many buyers are also benefiting from 30-year, fixed-rate mortgages averaging less than 4%, making it cheaper to borrow for a home. Mortgage rates have historically been closer to 6%.
Borrowing costs are expected to rise shortly after the Federal Reserve this month raised a key short-term interest rate for the first time in nearly a decade. Yet the federal funds rate—what banks charge each other to lend overnight—remains low at 0.25% to 0.5%, such that mortgage rates are unlikely to return to their historic averages.
When the Fed previously hiked this rate from 1% to 5.25% through the middle of 2007, mortgage rates increased a mere 0.75 points.
