Home prices see biggest gains in 7 years

Updated Jun 13, 2013

homesalesIn May, home prices saw their biggest gains in 7 years, according to a report from the New York Times citing data from the Standard & Poor’s Case-Shiller home price index.

The index of home prices, which covers 20 U.S. cities, indicated a 10.9-percent gain over last year at the same time. That’s the biggest increase home prices have seen since April 2006.

The Times reports that the gain is due to several factors. First and foremost, the U.S. economy has added jobs for 31 months straight now, meaning more Americans, especially families, have the ability to buy again.

However, because construction of new homes has been down since the recession, the recent increase in demand has strained the housing market’s low inventory on desirable homes. Meanwhile, sellers are reluctant to come down on their prices or even negotiate because they’ve already been forced to heavily discount them and many are still underwater on their mortgages.

All of this has pushed prices up, which could actually be a good thing for the market since more sellers could decide to get in the game. That would drive up inventory and normalize things out a bit.

Economists expect home prices to continue their ascent and have largely dismissed talks of another housing bubble since that is typically accompanied by easy credit. And right now, many potential homebuyers are having a hard time securing a loan.

Another factor that could keep home prices up is home builders across the country are currently unable to meet rising demand due to a skilled labor shortage. If new houses can’t hit the market, the inventory stays thin and prices remain high.