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Home prices on the rise, but will it last?

According to a report by real estate website Zillow, home prices in the U.S. through the first half of this year increased by the largest amount since the housing boom seven years ago. The news seems to bode well for residential real estate, but some experts are questioning whether the upward trend is sustainable.

Since June of last year, national home values rose approximately 5.8 percent, which marks the highest increase since 2006. Through June of 2013, home prices are up about 2.7 percent, which is the best yearly gain since 2005. According to the Case-Shiller index, prices of residential real estate in the U.S. are approximately 24.4 percent lower than their peak in 2006. In March of last year, prices had declined about 35.1 percent since 2006.

Some experts have been surprised by the speed at which home values across the country have gone up. Low mortgage rates, as well as demand from investors, have definitely contributed to increasing real estate values.

The biggest question right now is whether the increase in housing prices is likely to be sustained as mortgage rates increase. Since May of this year, mortgage rates have already risen approximately a full percentage point, which could slow down sales in larger, more expensive markets.

As prices continue to rise, experts believe that available housing inventory is likely to increase, as potential sellers begin testing the market.

Only time will tell whether the current resurgence of residential real estate prices will continue, but, for now, many experts are remaining optimistic. 

Source: Wall Street Journal, “Home Prices Jump, but Headwinds Build,” Nick Timiraos, July 30, 2013

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