Home Prices Increase by Double Digits for Third Consecutive Month

The upward ascent of home prices continues. This morning, Standard & Poor's reported that its Case-Shiller 20-City home-price index climbed by 12% in May over the same month last year, and by 1% over April.

According to David Blitzer, chairman of Standard & Poor's index committee, "Home prices continue to strengthen. Two cities set new highs, surpassing their pre-crisis levels and five cities -- Atlanta, Chicago, San Diego, San Francisco, and Seattle -- posted monthly gains of over three percent, also a first time event." For the record, the two cities that set new all-time highs were Dallas and Denver.

There's no question that the ongoing correction in home prices is good news, and not just for the housing market, but for the economy overall. As I've discussed before, it's estimated that anywhere between 19% and 25% of homeowners are currently underwater on their mortgages.

Aside from the psychological toll that this takes on people, negative equity is also believed to be one of the primary impediments to faster growth in both consumer confidence and spending. Consequently, as home prices increase, fueling positive equity, there's reason to believe the volume of home sales will pick up -- along with other areas of consumer spending.

The one caveat is that this most recent reading largely precedes the surge in mortgage rates that began in the final week of May. Since then, the rate on a conventional 30-year mortgage shot up by more than 70 basis points, going from roughly 3.6% the week of May 23 up to 4.3% last week. Suffice it to say, we should begin to get a fuller picture of the effects of this on home prices for June.

Shares of the nation's largest homebuilders are mixed on the news. D.R. Horton (NYSE: DHI  ) is marginally higher at the time of writing while both PulteGroup (NYSE: PHM  ) and Lennar (NYSE: LEN  ) are slightly lower. A similar trend is evident in shares of the largest mortgage originators, with Wells Fargo (NYSE: WFC  ) up and JPMorgan Chase (NYSE: JPM  ) down in late-morning trading.

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