In this Tuesday, March 5, 2013, photo, a home is for sale in Auburn, N.H. Standard & Poor's/Case-Shiller reports on home prices in February on Tuesday, April 30, 2013. (AP Photo/Charles Krupa)
Updated: April 30, 2013 10:50AM
Home prices in the Chicago area surged 5.1 percent in February compared with a year earlier, a new report showed.
U.S. home prices did even better, rising 9.3 percent in February compared with a year ago, the most in nearly seven years. The gains were driven by a growing number of buyers who bid on a limited supply of homes.
The Standard & Poor’s/Case-Shiller 20-city home price index increased from an 8.1 percent year-over-year gain in January. And annual prices rose in February in all 20 cities for the second month in a row.
Phoenix led all cities with an annual gain of 23 percent in February. Prices jumped nearly 19 percent in San Francisco. In Las Vegas, home prices increased 17.6 percent and in Atlanta they rose 16.5 percent.
Eleven of the 20 cities reported price gains in February compared with January. Those monthly numbers are not seasonally adjusted and reflect the slower winter buying period.
The index covers roughly half of U.S. homes. It measures prices compared with those in January 2000 and creates a three-month moving average. The February figures are the latest available.
Steady hiring and near-record low mortgage rates are driving up demand, helping sustain the housing recovery that began last year. Buyer traffic was 25 percent higher in March than it was a year ago, according to the National Association of Realtors.
At the same time, prices are surging because buyers have fewer homes to bid on. The number of homes available for sale has fallen nearly 17 percent in the past year to 1.93 million, the Realtors’ group said last week. At the current sales pace, that supply would be exhausted in 4.7 months, below the 6 months that is typical in healthier markets.
Home prices nationwide are still about 30 percent below their peak reached at the height of the housing bubble in August 2006. They are only back to where they were in the fall of 2003.
And Stan Humphries, chief economist at Zillow, a real estate data provider, cautioned that the national figures are being skewed by sharp rebounds in cities hit hard during the housing bust, including Las Vegas and Phoenix. Investors are helping drive up prices in those cities.
“This report needs to start being taken with a grain of salt, Humphries said. “The appreciation rates we’re currently seeing ... are not broadly reflective of what’s happening in the national housing market right now.”
Steady home price gains can help drive the housing recovery. Higher home prices encourage more people to buy before prices rise further. They can also entice more homeowners to sell by making them more confident they’ll get a good price. In addition, higher prices raise the equity people have in their homes, which makes selling more profitable.
But many homeowners still owe more on their mortgages than their homes are worth. That can make it difficult to sell.
Higher home values can also help the economy. They increase homeowners’ wealth, which encourages more spending. Consumer spending drives 70 percent of economic growth.
Sales of previously occupied homes leveled off over the winter but may increase in the coming months. A measure of signed contracts to buy homes rose to a three-year high in March.
Homebuilders are also starting work on more new homes and apartments. That creates more construction jobs. Builders started work on more than 1 million homes at an annual rate in March. That’s the first time the pace has topped that threshold in nearly 5 years.