Home prices rose in July in 20 major US cities

Associated Press Modified: September 25, 2012 at 10:31 am •  Published: September 25, 2012
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Sales of previously occupied homes jumped in August to the highest level since May 2010. Builder confidence is at a six-year high and construction of single-family homes rose last month to the fastest annual rate in more than two years. Even with the gains, home sales and construction remain well below healthy levels.

The broader economy is likely to benefit from rising home prices. When home prices rise, people typically feel wealthier and spend more. And more Americans are likely to put their houses up for sale, which could further energize the market.

Home sales have been bolstered by the lowest mortgage rates on record. The average rate on the 30-year fixed mortgage touched a record low of 3.49 percent last week and has been below 4 percent all year. A limited supply of homes has also helped drive prices higher.

Prices are also rising because of a decline in foreclosures and sales of other deeply discounted homes. Many homes in the foreclosure process will likely come on the market in the coming months, which could drag on prices.

Still, many Americans, particularly first-time homebuyers, are unable to qualify for a mortgage or can't afford larger down payments required by banks. That's holding back sales.

Home sales could get a further boost from the Federal Reserve. The Fed said two weeks ago that it would purchase $40 billion of mortgage-backed securities each month until the economy and hiring improve substantially. That's likely to keep mortgage rates at record-low rates for some time.