TIME

Housing Prices Jump Though Top of Market Cools Off

The start to the story is the same as it has been for months: the most recent housing price data came in, and prices jumped.

However, the influence of extremely speculative markets (think: Miami and Vegas) is moderating, causing the national numbers to begin coming in at a slower pace.

For the year, this meant that the 20-City S&P/Case-Shiller Home Price Index, which had clocked a yearly gain of 10.8% in April, slowed to high single digits, posting a yearly gain of 9.3% for the twelve months ending in May.

On a monthly basis, prices were up 0.1% for the index. For the year, every one of the twenty cities showed price increases.

However, gains for the cities at the top of the market slowed, which may presage softer numbers for the index as a whole in the coming months. Call it “hot hot” instead of “hot hot hot.” Las Vegas, which last month showed a yearly gain of 18.8%, decelerated to a yearly gain of 16.9%; Miami slid from 14.7% to 13.2%, and Phoenix slowed from a yearly rate of 9.8% to 8.2%.

The cities with the slightest gains were Cleveland (up 1.2% month-to-month, and 2.4% annually); Charlotte (up 1.4% month-to-month, and 4.7% annually), and New York (up 1.0% from April, and 4.8% annually).

One strong driver behind the market has been historically low interest rates. The rate for thirty-year “jumbo” loans — those with a loan balance of greater than $417,000 — fell this week to 4.21 percent, according to a weekly survey by the Mortgage Bankers Association. The MBA noted in a release that this was “the lowest level since May 2013.”

So continued low rates are supporting high prices. But what about the Federal Reserve? Wasn’t the Fed, which had been following a program of supporting low interest rates by buying debt, supposed to be slowly removing that support by buying less debt? Last year, when then-Fed Chairman Ben Bernanke had announced that the Fed would wean off its latest round of bond purchasing, that so-called “Taper Talk” sent rates jumping.

Yet they’re low again because the economy made one strong realization: that “tapering” can be neutral. Yes, the Fed is buying less debt in an absolute sense — it’s buying a lower dollar volume worth of bonds. But the Federal government is also issuing less debt, since tax revenues are up. So indeed there’s less buying — but there’s less to buy. “It’s not really tightening if the proportion is the same,” noted Doug Duncan, senior vice president and chief economist of the mortgage giant Fannie Mae, in a chat with Time last month.

Going forward, there’s a possibility that rates do spike as the taper ends completely, which is planned for later this year. However, if the history of the past couple of years is any guide, that impact will show in a slowing volume of home sales. Prices, though, seem on track to keep rising — albeit at a slowing pace. Maybe by the end of the year, we’ll be down to just one “hot.”

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