Home prices and interest rates

According to RealtyTrac, the median price of residential properties that includes distressed and non-distressed sales was $191,000. This is not only a 3% increase in July from June and an increase of 12% from where it was last year, it’s the highest level for home prices since September 2008.

“As distressed sales continue to decline, the share of sales is tilting toward more expensive homes, boosting the nationwide median sales price,” said Daren Blomquist of RealtyTrac.

However, this trend hides the slowing of home appreciation in most markets across the country. Slowing home appreciation indicates there is a rational basis underlying the recovery of the real estate market.

Homes that sold for $200,000 or less comprised 49% of sales in July, which is down from 52% for this sector since last year. Homes selling above $200,000 accounted for the remaining sales. This is up from 48% for this sector from a year ago.

RealtyTrac reports that the following states had the largest increases in median prices: Michigan’s median prices increased 24%, Ohio’s median prices increased 20%, Virginia’s median prices increased 20%, Minnesota’s median prices increased 14% and New York’s median prices increased 13%.

When comparing metro areas to states, RealtyTrac followed 183 metro areas with populations of 200,000 or more. Of these metro areas, 65% experienced a lower annual home price appreciation in July compared to the same time frame in 2013.

The largest annual increases in median sales prices in metro areas were as follows:  Detroit’s median price increased 33%, Dayton, Ohio’s median price increased 31%, Stockton, Calif.’s median price increased 24%, Modesto, Calif.’s median price increased 22%, Cleveland’s median price increased 20% and Miami’s median price increased 19%.

Recently, the Federal Reserve chairwoman, Janet Yellen, stated that our economy is improving. However, the Fed needs more evidence regarding the health of labor markets before deciding when to start increasing interest rates. The extent of the Great Recession combined with “simultaneous changes” in the economy combined with “ups and downs” of the business cycle are challenges for the Fed.

After meeting in July, the Fed is holding interest rates near zero as it is necessary to increase U.S. employment. The Fed’s perspective is that there is a significant gap between present conditions and a fully recovered economy.  The Fed, however, is expected to cease buying bonds in October.

Economic analysts expect interest rates will increase next year, but differ as to when it will be done. Some analysts’ perspective is that the Fed has nearly done what it can to improve the economy’s health and that continuing its present course of action could affect the central bank’s ability to control price inflation. Some analysts fear that some factors like the aging population that existed before the Great Recession will continue to adversely affect employment. Such factors may not respond to low-interest rates.

Today’s economic complexities require cautious considerations by the Fed.


Mary Ann Clark is a Realtor with Coldwell Banker at 177 West Putnam Avenue in Greenwich. Questions or comments may be emailed to [email protected]

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